It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds’ favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Johnson & Johnson (NYSE:JNJ) and compare its performance against hedge funds’ favorite stocks.
Is Johnson & Johnson (NYSE:JNJ) a healthy stock for your portfolio? Money managers are turning bullish. The number of bullish hedge fund bets improved by 13 in recent months. Our calculations also showed that JNJ currently ranks 27th among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). JNJ was in 76 hedge funds’ portfolios at the end of September. There were 63 hedge funds in our database with JNJ holdings at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to go over the latest hedge fund action surrounding Johnson & Johnson (NYSE:JNJ).
What have hedge funds been doing with Johnson & Johnson (NYSE:JNJ)?
Heading into the fourth quarter of 2019, a total of 76 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from one quarter earlier. By comparison, 63 hedge funds held shares or bullish call options in JNJ a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Fisher’s Fisher Asset Management has the largest position in Johnson & Johnson (NYSE:JNJ), worth close to $1.5631 billion, accounting for 1.7% of its total 13F portfolio. On Fisher Asset Management’s heels is D E Shaw, managed by David E. Shaw, which holds a $965.1 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism contain Cliff Asness’s AQR Capital Management, Renaissance Technologies and Donald Yacktman’s Yacktman Asset Management. In terms of the portfolio weights assigned to each position Yacktman Asset Management allocated the biggest weight to Johnson & Johnson (NYSE:JNJ), around 7.34% of its 13F portfolio. Sio Capital is also relatively very bullish on the stock, setting aside 5.99 percent of its 13F equity portfolio to JNJ.
As one would reasonably expect, specific money managers were breaking ground themselves. Senator Investment Group, managed by Doug Silverman and Alexander Klabin, initiated the largest position in Johnson & Johnson (NYSE:JNJ). Senator Investment Group had $113.9 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace also initiated a $89.1 million position during the quarter. The following funds were also among the new JNJ investors: Arthur B Cohen and Joseph Healey’s Healthcor Management, Anand Parekh’s Alyeska Investment Group, and Michael Castor’s Sio Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Johnson & Johnson (NYSE:JNJ) but similarly valued. These stocks are Walmart Inc. (NYSE:WMT), Nestle SA (OTCMKTS:NSRGY), The Procter & Gamble Company (NYSE:PG), and Exxon Mobil Corporation (NYSE:XOM). This group of stocks’ market caps resemble JNJ’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 43.5 hedge funds with bullish positions and the average amount invested in these stocks was $5079 million. That figure was $7327 million in JNJ’s case. The Procter & Gamble Company (NYSE:PG) is the most popular stock in this table. On the other hand Nestle SA (OTCMKTS:NSRGY) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Johnson & Johnson (NYSE:JNJ) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately JNJ wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on JNJ were disappointed as the stock returned 16.7% so far in 2019 (thorugh 12/23) 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 65 percent of these stocks already outperformed the market in 2019
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.