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Were Hedge Funds Right About Abbott Laboratories (ABT)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. After several tireless days we have finished crunching the numbers from nearly 835 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Abbott Laboratories (NYSE:ABT).

Is Abbott Laboratories (NYSE:ABT) worth your attention right now? Investors who are in the know are getting less bullish. The number of bullish hedge fund bets were cut by 3 recently. Our calculations also showed that ABT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). ABT was in 62 hedge funds’ portfolios at the end of December. There were 65 hedge funds in our database with ABT positions at the end of the previous quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Charles Davidson - Wexford Capital

Charles Davidson of Wexford Capital

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. Federal Reserve and Central Banks all around world are printing money like there is no tomorrow, so we check out this this precious metals expert’s stock pick. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a gander at the new hedge fund action surrounding Abbott Laboratories (NYSE:ABT).

What does smart money think about Abbott Laboratories (NYSE:ABT)?

At the end of the fourth quarter, a total of 62 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the previous quarter. On the other hand, there were a total of 51 hedge funds with a bullish position in ABT a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

More specifically, GQG Partners was the largest shareholder of Abbott Laboratories (NYSE:ABT), with a stake worth $653.8 million reported as of the end of September. Trailing GQG Partners was Diamond Hill Capital, which amassed a stake valued at $554.4 million. Adage Capital Management, Sirios Capital Management, and Duquesne Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Sirios Capital Management allocated the biggest weight to Abbott Laboratories (NYSE:ABT), around 5.35% of its 13F portfolio. GQG Partners is also relatively very bullish on the stock, designating 4.51 percent of its 13F equity portfolio to ABT.

Judging by the fact that Abbott Laboratories (NYSE:ABT) has faced falling interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few money managers that elected to cut their entire stakes in the third quarter. It’s worth mentioning that Arthur B Cohen and Joseph Healey’s Healthcor Management LP said goodbye to the biggest investment of the 750 funds watched by Insider Monkey, comprising an estimated $63.3 million in stock. Brian Ashford-Russell and Tim Woolley’s fund, Polar Capital, also dropped its stock, about $46.8 million worth. These transactions are important to note, as total hedge fund interest dropped by 3 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Abbott Laboratories (NYSE:ABT) but similarly valued. These stocks are Medtronic plc (NYSE:MDT), The Unilever Group (NYSE:UN), Bristol Myers Squibb Company (NYSE:BMY), and The Unilever Group (NYSE:UL). This group of stocks’ market valuations resemble ABT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MDT 66 2500872 10
UN 15 1009132 -2
BMY 122 7810013 61
UL 17 247925 2
Average 55 2891986 17.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 55 hedge funds with bullish positions and the average amount invested in these stocks was $2892 million. That figure was $2056 million in ABT’s case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand The Unilever Group (NYSE:UN) is the least popular one with only 15 bullish hedge fund positions. Abbott Laboratories (NYSE:ABT) is not the most popular stock in this group but hedge fund interest is still above average. 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 lost 1.0% in 2020 through April 20th but still beat the market by 11 percentage points. Hedge funds were also right about betting on ABT as the stock returned 13.8% in 2020 (through April 20th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
5 Most Popular Stocks Among Hedge Funds
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.

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