Hedge Funds Never Been Less Bullish On Novartis AG (NVS)

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st. We at Insider Monkey have made an extensive database of more than 866 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Novartis AG (NYSE:NVS) based on those filings.

Novartis AG (NYSE:NVS) was in 19 hedge funds’ portfolios at the end of March. The all time high for this statistic is 34. NVS shareholders have witnessed a decrease in hedge fund interest recently. There were 23 hedge funds in our database with NVS holdings at the end of December. Our calculations also showed that NVS isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Cathie Wood ARK Investment Management

Cathie Wood of ARK Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let’s take a look at the key hedge fund action surrounding Novartis AG (NYSE:NVS).

Do Hedge Funds Think NVS Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. On the other hand, there were a total of 30 hedge funds with a bullish position in NVS a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Among these funds, Fisher Asset Management held the most valuable stake in Novartis AG (NYSE:NVS), which was worth $825.5 million at the end of the fourth quarter. On the second spot was ARK Investment Management which amassed $618.9 million worth of shares. Renaissance Technologies, Citadel Investment Group, and Osterweis 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 Osterweis Capital Management allocated the biggest weight to Novartis AG (NYSE:NVS), around 1.32% of its 13F portfolio. ARK Investment Management is also relatively very bullish on the stock, setting aside 1.23 percent of its 13F equity portfolio to NVS.

Due to the fact that Novartis AG (NYSE:NVS) has faced falling interest from the aggregate hedge fund industry, we can see that there were a few fund managers who sold off their entire stakes in the first quarter. It’s worth mentioning that Doron Breen and Mori Arkin’s Sphera Global Healthcare Fund cut the biggest position of the 750 funds monitored by Insider Monkey, comprising an estimated $40.5 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also said goodbye to its stock, about $28.6 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 4 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Novartis AG (NYSE:NVS). These stocks are AbbVie Inc (NYSE:ABBV), Broadcom Inc (NASDAQ:AVGO), Accenture Plc (NYSE:ACN), Thermo Fisher Scientific Inc. (NYSE:TMO), Eli Lilly and Company (NYSE:LLY), Texas Instruments Incorporated (NASDAQ:TXN), and BHP Group (NYSE:BHP). This group of stocks’ market values match NVS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ABBV 72 5916781 -11
AVGO 53 3313279 -6
ACN 48 2350908 -2
TMO 79 6254066 -10
LLY 55 2522416 5
TXN 42 2532768 -14
BHP 18 873686 -2
Average 52.4 3394843 -5.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 52.4 hedge funds with bullish positions and the average amount invested in these stocks was $3395 million. That figure was $1709 million in NVS’s case. Thermo Fisher Scientific Inc. (NYSE:TMO) is the most popular stock in this table. On the other hand BHP Group (NYSE:BHP) is the least popular one with only 18 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. Our overall hedge fund sentiment score for NVS is 18.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately NVS wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); NVS investors were disappointed as the stock returned 7.3% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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