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Did Hedge Funds Make The Right Call On Novartis AG (NVS) ?

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 Novartis AG (NYSE:NVS) based on that data and determine whether they were really smart about the stock.

Hedge fund interest in Novartis AG (NYSE:NVS) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare NVS to other stocks including Bank of America Corporation (NYSE:BAC), Pfizer Inc. (NYSE:PFE), and The Walt Disney Company (NYSE:DIS) to get a better sense of its popularity.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross of Adage Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. With all of this in mind let’s take a look at the latest hedge fund action surrounding Novartis AG (NYSE:NVS).

How are hedge funds trading Novartis AG (NYSE:NVS)?

At the end of the first quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NVS over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is NVS A Good Stock To Buy?

Among these funds, Fisher Asset Management held the most valuable stake in Novartis AG (NYSE:NVS), which was worth $703.7 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $700.1 million worth of shares. Arrowstreet Capital, Millennium Management, and Redmile Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Integral Health Asset Management allocated the biggest weight to Novartis AG (NYSE:NVS), around 2.54% of its 13F portfolio. Bourgeon Capital is also relatively very bullish on the stock, dishing out 2.4 percent of its 13F equity portfolio to NVS.

Due to the fact that Novartis AG (NYSE:NVS) has experienced bearish sentiment from the smart money, it’s safe to say that there exists a select few hedge funds who sold off their full holdings heading into Q4. Intriguingly, Anand Parekh’s Alyeska Investment Group cut the largest position of the 750 funds followed by Insider Monkey, worth about $60 million in stock. Christopher James’s fund, Partner Fund Management, also said goodbye to its stock, about $40.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to Novartis AG (NYSE:NVS). These stocks are Bank of America Corporation (NYSE:BAC), Pfizer Inc. (NYSE:PFE), The Walt Disney Company (NYSE:DIS), and Toyota Motor Corporation (NYSE:TM). This group of stocks’ market caps are similar to NVS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BAC 95 21721713 -4
PFE 67 3159878 5
DIS 102 4701800 -16
TM 11 206410 -1
Average 68.75 7447450 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 68.75 hedge funds with bullish positions and the average amount invested in these stocks was $7447 million. That figure was $2035 million in NVS’s case. The Walt Disney Company (NYSE:DIS) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 11 bullish hedge fund positions. Novartis AG (NYSE:NVS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds 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 and surpassed the market by 15.5 percentage points. Unfortunately NVS wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NVS investors were disappointed as the stock returned 5.9% 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 in 2020.

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