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Were Hedge Funds Right About AbbVie Inc (ABBV)?

Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost more than 25%. Facebook, which was the second most popular stock, lost 20% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the first 2.5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is AbbVie Inc (NYSE:ABBV) a bargain? Prominent investors are taking a bullish view. The number of long hedge fund positions improved by 6 in recent months. Our calculations also showed that ABBV isn’t among the 30 most popular stocks among hedge funds. ABBV was in 46 hedge funds’ portfolios at the end of December. There were 40 hedge funds in our database with ABBV positions at the end of the previous quarter.

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.

Ken Griffin

We’re going to take a look at the fresh hedge fund action encompassing AbbVie Inc (NYSE:ABBV).

What have hedge funds been doing with AbbVie Inc (NYSE:ABBV)?

At Q4’s end, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ABBV over the last 14 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

ABBV_mar2019

Among these funds, Orbis Investment Management held the most valuable stake in AbbVie Inc (NYSE:ABBV), which was worth $1531 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $658.6 million worth of shares. Moreover, AQR Capital Management, Citadel Investment Group, and Two Sigma Advisors were also bullish on AbbVie Inc (NYSE:ABBV), allocating a large percentage of their portfolios to this stock.

As industrywide interest jumped, some big names were leading the bulls’ herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the most outsized position in AbbVie Inc (NYSE:ABBV). Marshall Wace LLP had $24 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $18.4 million investment in the stock during the quarter. The following funds were also among the new ABBV investors: David Lohman’s Diag Capital, Jeffrey Talpins’s Element Capital Management, and Nick Niell’s Arrowgrass Capital Partners.

Let’s check out hedge fund activity in other stocks similar to AbbVie Inc (NYSE:ABBV). We will take a look at McDonald’s Corporation (NYSE:MCD), TOTAL S.A. (NYSE:TOT), Anheuser-Busch InBev SA/NV (NYSE:BUD), and BP plc (NYSE:BP). This group of stocks’ market values are similar to ABBV’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MCD 48 1125472 10
TOT 9 914358 -4
BUD 21 1133052 1
BP 34 1377098 2
Average 28 1137495 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $1137 million. That figure was $3023 million in ABBV’s case. McDonald’s Corporation (NYSE:MCD) is the most popular stock in this table. On the other hand TOTAL S.A. (NYSE:TOT) is the least popular one with only 9 bullish hedge fund positions. AbbVie Inc (NYSE:ABBV) is not the most popular stock in this group and hedge fund interest has been decreasing in recent years. So, we can say that hedge funds are really getting bearish on Abbvie. 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 ABBV wasn’t in this group. Hedge funds that bet on ABBV were disappointed as the stock lost 10.7% 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.

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