Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Quest Diagnostics Incorporated (NYSE:DGX).
Is Quest Diagnostics Incorporated (NYSE:DGX) undervalued? Hedge funds are getting less optimistic. The number of bullish hedge fund positions shrunk by 12 recently. Our calculations also showed that DGX isn’t among the 30 most popular stocks among hedge funds.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to take a gander at the key hedge fund action regarding Quest Diagnostics Incorporated (NYSE:DGX).
What have hedge funds been doing with Quest Diagnostics Incorporated (NYSE:DGX)?
At Q4’s end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -32% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in DGX a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, John A. Levin’s Levin Capital Strategies has the number one position in Quest Diagnostics Incorporated (NYSE:DGX), worth close to $119.8 million, comprising 2.6% of its total 13F portfolio. Sitting at the No. 2 spot is Arthur B Cohen and Joseph Healey of Healthcor Management LP, with a $109.7 million position; 3.5% of its 13F portfolio is allocated to the company. Other professional money managers with similar optimism contain John Overdeck and David Siegel’s Two Sigma Advisors, Paul Marshall and Ian Wace’s Marshall Wace LLP and Bernard Horn’s Polaris Capital Management.
Because Quest Diagnostics Incorporated (NYSE:DGX) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there exists a select few hedge funds that slashed their positions entirely in the third quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management dumped the biggest stake of all the hedgies tracked by Insider Monkey, totaling about $24.5 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund cut about $19.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 12 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Quest Diagnostics Incorporated (NYSE:DGX) but similarly valued. We will take a look at SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), The Mosaic Company (NYSE:MOS), Broadridge Financial Solutions, Inc. (NYSE:BR), and Equifax Inc. (NYSE:EFX). All of these stocks’ market caps match DGX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SSNC | 37 | 1400952 | -4 |
| MOS | 37 | 765297 | 3 |
| BR | 22 | 486909 | -11 |
| EFX | 22 | 785153 | -13 |
| Average | 29.5 | 859578 | -6.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $860 million. That figure was $584 million in DGX’s case. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is the most popular stock in this table. On the other hand Broadridge Financial Solutions, Inc. (NYSE:BR) is the least popular one with only 22 bullish hedge fund positions. Quest Diagnostics Incorporated (NYSE:DGX) 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 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately DGX wasn’t in this group. Hedge funds that bet on DGX were disappointed as the stock returned 7.5% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
