Here is How Hedge Funds Traded Merck & Co. (MRK) During The Crash

In this article you are going to find out whether hedge funds think Merck & Co., Inc. (NYSE:MRK) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Merck & Co., Inc. (NYSE:MRK) was in 78 hedge funds’ portfolios at the end of March. MRK has seen an increase in hedge fund interest lately. There were 77 hedge funds in our database with MRK holdings at the end of the previous quarter. Our calculations also showed that MRK isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 44 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Michael Hintze CQS Capital

Michael Hintze of CQS Cayman LP

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Europe is set to become the world’s largest cannabis market, so we checked out this European marijuana stock pitch. Also, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this analyst’s “corona catalyst plays“.  We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to check out the fresh hedge fund action regarding Merck & Co., Inc. (NYSE:MRK).

What have hedge funds been doing with Merck & Co., Inc. (NYSE:MRK)?

At the end of the first quarter, a total of 78 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 1% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MRK over the last 18 quarters. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

The largest stake in Merck & Co., Inc. (NYSE:MRK) was held by Arrowstreet Capital, which reported holding $896.3 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $685.3 million position. Other investors bullish on the company included AQR Capital Management, Renaissance Technologies, and D E Shaw. In terms of the portfolio weights assigned to each position Kahn Brothers allocated the biggest weight to Merck & Co., Inc. (NYSE:MRK), around 14.07% of its 13F portfolio. Sphera Global Healthcare Fund is also relatively very bullish on the stock, setting aside 8.36 percent of its 13F equity portfolio to MRK.

Now, some big names were breaking ground themselves. Antipodes Partners, managed by Jacob Mitchell, established the biggest position in Merck & Co., Inc. (NYSE:MRK). Antipodes Partners had $142.5 million invested in the company at the end of the quarter. Doron Breen and Mori Arkin’s Sphera Global Healthcare Fund also made a $66.8 million investment in the stock during the quarter. The following funds were also among the new MRK investors: Jeremy Green’s Redmile Group, Michael Hintze’s CQS Cayman LP, and Richard Gerson and Navroz D. Udwadia’s Falcon Edge Capital.

Let’s now review hedge fund activity in other stocks similar to Merck & Co., Inc. (NYSE:MRK). We will take a look at The Coca-Cola Company (NYSE:KO), Novartis AG (NYSE:NVS), Bank of America Corporation (NYSE:BAC), and Pfizer Inc. (NYSE:PFE). This group of stocks’ market caps are similar to MRK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KO 55 19901708 4
NVS 30 2034578 0
BAC 95 21721713 -4
PFE 67 3159878 5
Average 61.75 11704469 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 61.75 hedge funds with bullish positions and the average amount invested in these stocks was $11704 million. That figure was $5026 million in MRK’s case. Bank of America Corporation (NYSE:BAC) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 30 bullish hedge fund positions. Merck & Co., Inc. (NYSE:MRK) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but beat the market by 15.6 percentage points. Unfortunately MRK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MRK were disappointed as the stock returned -0.7% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.