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Hedge Funds Souring On Illumina, Inc. (ILMN)

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Illumina, Inc. (NASDAQ:ILMN).

Illumina, Inc. (NASDAQ:ILMN) was in 37 hedge funds’ portfolios at the end of September. ILMN has experienced a decrease in hedge fund sentiment lately. There were 43 hedge funds in our database with ILMN positions at the end of the previous quarter. 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 below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Andreas Halvorsen

Andreas Halvorsen of Viking Global

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s check out the key hedge fund action regarding Illumina, Inc. (NASDAQ:ILMN).

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

At the end of the third quarter, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on 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 examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

ILMN_dec2019

The largest stake in Illumina, Inc. (NASDAQ:ILMN) was held by Viking Global, which reported holding $586.2 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $180 million position. Other investors bullish on the company included Alkeon Capital Management, GuardCap Asset Management, and Adage Capital Management. 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 portfolio. GuardCap Asset Management is also relatively very bullish on the stock, setting aside 4.77 percent of its 13F equity portfolio to ILMN.

Since Illumina, Inc. (NASDAQ:ILMN) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there exists a select few hedge funds that slashed their full holdings last quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the largest position of the “upper crust” of funds watched by Insider Monkey, totaling close to $69.2 million in stock, and Stanley Druckenmiller’s Duquesne Capital was right behind this move, as the fund dropped about $62.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 6 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Illumina, Inc. (NASDAQ:ILMN). 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 caps match ILMN’s market cap.

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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 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 5.4% during the fourth quarter (through the end of November) 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.

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

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