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Did Hedge Funds Make The Right Call On GlaxoSmithKline plc (GSK)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of GlaxoSmithKline plc (NYSE:GSK) based on that data and determine whether they were really smart about the stock.

GlaxoSmithKline plc (NYSE:GSK) was in 27 hedge funds’ portfolios at the end of March. GSK has experienced an increase in enthusiasm from smart money of late. There were 26 hedge funds in our database with GSK positions at the end of the previous quarter. Our calculations also showed that GSK isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

FISHER ASSET MANAGEMENT

Ken Fisher of Fisher Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to check out the latest hedge fund action encompassing GlaxoSmithKline plc (NYSE:GSK).

Hedge fund activity in GlaxoSmithKline plc (NYSE:GSK)

At the end of the first quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in GSK a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

The largest stake in GlaxoSmithKline plc (NYSE:GSK) was held by Renaissance Technologies, which reported holding $874.4 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $588.8 million position. Other investors bullish on the company included Camber Capital Management, Arrowstreet Capital, and Kahn Brothers. In terms of the portfolio weights assigned to each position Kahn Brothers allocated the biggest weight to GlaxoSmithKline plc (NYSE:GSK), around 10.7% of its 13F portfolio. Camber Capital Management is also relatively very bullish on the stock, earmarking 6.79 percent of its 13F equity portfolio to GSK.

As aggregate interest increased, some big names have been driving this bullishness. Camber Capital Management, managed by Stephen DuBois, initiated the biggest position in GlaxoSmithKline plc (NYSE:GSK). Camber Capital Management had $113.7 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $31.9 million investment in the stock during the quarter. The other funds with brand new GSK positions are Dmitry Balyasny’s Balyasny Asset Management, Peter S. Stamos’s Stamos Capital, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s also examine hedge fund activity in other stocks similar to GlaxoSmithKline plc (NYSE:GSK). These stocks are Broadcom Inc (NASDAQ:AVGO), Honeywell International Inc. (NYSE:HON), Gilead Sciences, Inc. (NASDAQ:GILD), and Texas Instruments Incorporated (NASDAQ:TXN). This group of stocks’ market values resemble GSK’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AVGO 50 1720031 -11
HON 44 1215105 -11
GILD 76 2832662 9
TXN 46 1744576 -4
Average 54 1878094 -4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 54 hedge funds with bullish positions and the average amount invested in these stocks was $1878 million. That figure was $1953 million in GSK’s case. Gilead Sciences, Inc. (NASDAQ:GILD) is the most popular stock in this table. On the other hand Honeywell International Inc. (NYSE:HON) is the least popular one with only 44 bullish hedge fund positions. Compared to these stocks GlaxoSmithKline plc (NYSE:GSK) is even less popular than HON. Hedge funds dodged a bullet by taking a bearish stance towards GSK. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately GSK wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); GSK investors were disappointed as the stock returned 8.9% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.