While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the second quarter and hedging or reducing many of their long positions. Some fund managers like this one are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Jazz Pharmaceuticals Public Limited Company (NASDAQ:JAZZ).
Jazz Pharmaceuticals Public Limited Company (NASDAQ:JAZZ) was in 20 hedge funds’ portfolios at the end of June. JAZZ shareholders have witnessed a decrease in hedge fund interest in recent months. There were 27 hedge funds in our database with JAZZ holdings at the end of the previous quarter. Our calculations also showed that JAZZ isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the recent hedge fund action encompassing Jazz Pharmaceuticals Public Limited Company (NASDAQ:JAZZ).
How are hedge funds trading Jazz Pharmaceuticals Public Limited Company (NASDAQ:JAZZ)?
At the end of the second quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from the previous quarter. By comparison, 27 hedge funds held shares or bullish call options in JAZZ a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Jazz Pharmaceuticals Public Limited Company (NASDAQ:JAZZ), which was worth $364.4 million at the end of the second quarter. On the second spot was AQR Capital Management which amassed $147.5 million worth of shares. Moreover, Two Sigma Advisors, Arrowstreet Capital, and Sarissa Capital Management were also bullish on Jazz Pharmaceuticals Public Limited Company (NASDAQ:JAZZ), allocating a large percentage of their portfolios to this stock.
Since Jazz Pharmaceuticals Public Limited Company (NASDAQ:JAZZ) has faced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there were a few hedge funds who were dropping their positions entirely in the second quarter. It’s worth mentioning that Andreas Halvorsen’s Viking Global sold off the largest stake of all the hedgies followed by Insider Monkey, worth an estimated $90.9 million in stock, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt. was right behind this move, as the fund dumped about $14.6 million worth. These transactions are interesting, as total hedge fund interest dropped by 7 funds in the second quarter.
Let’s check out hedge fund activity in other stocks similar to Jazz Pharmaceuticals Public Limited Company (NASDAQ:JAZZ). These stocks are Teradyne, Inc. (NYSE:TER), Cypress Semiconductor Corporation (NASDAQ:CY), Caesars Entertainment Corp (NASDAQ:CZR), and Pearson PLC (NYSE:PSO). All of these stocks’ market caps match JAZZ’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TER | 27 | 684058 | 3 |
| CY | 36 | 1306956 | 11 |
| CZR | 48 | 3654846 | -9 |
| PSO | 4 | 7111 | 0 |
| Average | 28.75 | 1413243 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $1413 million. That figure was $745 million in JAZZ’s case. Caesars Entertainment Corp (NASDAQ:CZR) is the most popular stock in this table. On the other hand Pearson PLC (NYSE:PSO) is the least popular one with only 4 bullish hedge fund positions. Jazz Pharmaceuticals Public Limited Company (NASDAQ:JAZZ) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately JAZZ wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); JAZZ investors were disappointed as the stock returned -10.1% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
