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Is GlaxoSmithKline (GSK) Right for Your Dividend Portfolio?

“Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum,” said Clearbridge Investments in its market commentary. We aren’t sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards GlaxoSmithKline plc (ADR) (NYSE:GSK).

Hedge fund ownership of GlaxoSmithKline plc (ADR) (NYSE:GSK) leveled off in Q2 after three straight quarters of decline that saw it fall by 41% during that time. With its 5.10% dividend yield, GSK ranked in the top 10 among the 25 Dividend Stocks that Billionaire Ken Fisher is Bullish On. As the company prepares to spend big on acquisitions, there have been concerns that its dividend may need to be cut, but the company reaffirmed its commitment to its current dividend policy earlier this year.

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 17.4% year to date and outperformed the market by more than 14 percentage points this year. This strategy also outperformed the market by 3 percentage points in the fourth quarter despite the market volatility (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Irving Kahn

Hedge fund activity in GlaxoSmithKline plc (ADR) (NYSE:GSK)

At Q3’s end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a unchanged from the previous quarter. The graph below displays the number of hedge funds with bullish position in GSK over the last 6 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

GSK_nov2018

According to Insider Monkey’s hedge fund database, Ken Fisher’s Fisher Asset Management has the number one position in GlaxoSmithKline plc (ADR) (NYSE:GSK), worth close to $557.3 million, corresponding to 0.7% of its total 13F portfolio. The second largest stake is held by Renaissance Technologies, managed by Jim Simons, which holds a $376.1 million position; 0.4% of its 13F portfolio is allocated to the stock. Some other professional money managers that are bullish include Irving Kahn’s Kahn Brothers, Stephen J. Errico’s Locust Wood Capital Advisers and Scott Wallace’s Wallace Capital Management.

Since GlaxoSmithKline plc (ADR) (NYSE:GSK) has experienced declining sentiment from the smart money, we can see that there exists a select few hedgies that decided to sell off their positions entirely heading into Q3. It’s worth mentioning that Stephen DuBois’ Camber Capital Management dumped the largest investment of the “upper crust” of funds followed by Insider Monkey, valued at an estimated $58.6 million in stock, and James E. Flynn’s Deerfield Management was right behind this move, as the fund dumped about $31.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to GlaxoSmithKline plc (ADR) (NYSE:GSK). We will take a look at Sanofi SA (ADR) (NYSE:SNY), Paypal Holdings Inc (NASDAQ:PYPL), Booking Holdings Inc. (NASDAQ:BKNG), and Rio Tinto plc (ADR) (NYSE:RIO). All of these stocks’ market caps are closest to GSK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SNY 23 887312 -1
PYPL 86 4904464 2
BKNG 70 6678582 -5
RIO 20 793930 2

As you can see these stocks had an average of 50 hedge funds with bullish positions and the average amount invested in these stocks was $3.32 billion. That figure was $1.19 billion in GSK’s case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand Rio Tinto plc (ADR) (NYSE:RIO) is the least popular one with only 20 bullish hedge fund positions. GlaxoSmithKline plc (ADR) (NYSE:GSK) 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, like Paypal.

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

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