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Hedge Fund Favorites vs. Illumina, Inc. (ILMN) In 2019

It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds’ favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Illumina, Inc. (NASDAQ:ILMN) and compare its performance against hedge funds’ favorite stocks.

Illumina, Inc. (NASDAQ:ILMN) investors should be aware of a decrease in activity from the world’s largest hedge funds lately. Our calculations also showed that ILMN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Andreas Halvorsen

Andreas Halvorsen of Viking Global

We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind let’s go over the fresh hedge fund action encompassing Illumina, Inc. (NASDAQ:ILMN).

What does smart money think about Illumina, Inc. (NASDAQ:ILMN)?

Heading into the fourth quarter of 2019, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in ILMN over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Viking Global was the largest shareholder of Illumina, Inc. (NASDAQ:ILMN), with a stake worth $586.2 million reported as of the end of September. Trailing Viking Global was Citadel Investment Group, which amassed a stake valued at $180 million. Alkeon Capital Management, GuardCap Asset Management, and Adage Capital Management 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 Waterstone Capital Management allocated the biggest weight to Illumina, Inc. (NASDAQ:ILMN), around 6.74% of its 13F portfolio. GuardCap Asset Management is also relatively very bullish on the stock, setting aside 4.77 percent of its 13F equity portfolio to ILMN.

Due to the fact that Illumina, Inc. (NASDAQ:ILMN) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there exists a select few funds who were dropping their positions entirely last quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the largest position of all the hedgies followed by Insider Monkey, worth close to $69.2 million in stock. Stanley Druckenmiller’s fund, Duquesne Capital, also said goodbye to its stock, about $62.9 million worth. These moves are important to note, as aggregate hedge fund interest fell by 6 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Illumina, Inc. (NASDAQ:ILMN) but similarly valued. These stocks are Baxter International Inc. (NYSE:BAX), Las Vegas Sands Corp. (NYSE:LVS), Metlife Inc (NYSE:MET), and BCE Inc. (NYSE:BCE). This group of stocks’ market values are closest to ILMN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BAX 33 2445089 -1
LVS 39 1983338 0
MET 35 2050364 9
BCE 13 415810 -1
Average 30 1723650 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $1724 million. That figure was $1183 million in ILMN’s case. Las Vegas Sands Corp. (NYSE:LVS) is the most popular stock in this table. On the other hand BCE Inc. (NYSE:BCE) is the least popular one with only 13 bullish hedge fund positions. Illumina, Inc. (NASDAQ:ILMN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately ILMN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ILMN were disappointed as the stock returned 11.4% in 2019 (through December 23rd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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