Hedge Funds Sold GlaxoSmithKline plc (GSK) A Little Bit Too Early

Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of GlaxoSmithKline plc (NYSE:GSK) and see how the stock is affected by the recent hedge fund activity.

Is GlaxoSmithKline plc (NYSE:GSK) undervalued? The smart money is becoming less hopeful. The number of bullish hedge fund positions shrunk by 4 lately. Our calculations also showed that GSK isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

At the moment there are plenty of tools stock traders have at their disposal to appraise their stock investments. A couple of the best tools are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the top investment managers can outclass the S&P 500 by a significant amount (see the details here).

Irving Kahn

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 latest hedge fund action encompassing GlaxoSmithKline plc (NYSE:GSK).

What does smart money think about GlaxoSmithKline plc (NYSE:GSK)?

Heading into the third quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GSK over the last 16 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).


Among these funds, Renaissance Technologies held the most valuable stake in GlaxoSmithKline plc (NYSE:GSK), which was worth $610.8 million at the end of the second quarter. On the second spot was Fisher Asset Management which amassed $554.5 million worth of shares. Moreover, Arrowstreet Capital, Kahn Brothers, and Ariel Investments were also bullish on GlaxoSmithKline plc (NYSE:GSK), allocating a large percentage of their portfolios to this stock.

Since GlaxoSmithKline plc (NYSE:GSK) has faced falling interest from the smart money, it’s easy to see that there exists a select few fund managers that decided to sell off their full holdings in the second quarter. Intriguingly, D. E. Shaw’s D E Shaw dropped the largest investment of the 750 funds tracked by Insider Monkey, comprising close to $11.9 million in stock. Bain Capital’s fund, Brookside Capital, also said goodbye to its stock, about $4.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 4 funds in the second quarter.

Let’s also examine hedge fund activity in other stocks similar to GlaxoSmithKline plc (NYSE:GSK). These stocks are PetroChina Company Limited (NYSE:PTR), 3M Company (NYSE:MMM), NextEra Energy, Inc. (NYSE:NEE), and Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR). This group of stocks’ market valuations are closest to GSK’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PTR 9 102928 -3
MMM 40 939257 -3
NEE 40 742117 4
PBR 32 2194573 2
Average 30.25 994719 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $995 million. That figure was $1688 million in GSK’s case. 3M Company (NYSE:MMM) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 9 bullish hedge fund positions. GlaxoSmithKline plc (NYSE:GSK) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on GSK as the stock returned 7.9% during the same time frame and outperformed the market by an even larger margin.

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