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Were Hedge Funds Right About Amgen, Inc. (AMGN)?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Amgen, Inc. (NASDAQ:AMGN) to find out whether it was one of their high conviction long-term ideas.

Amgen, Inc. (NASDAQ:AMGN) has seen an increase in activity from the world’s largest hedge funds of late. AMGN was in 46 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 42 hedge funds in our database with AMGN positions at the end of the previous quarter. Our calculations also showed that AMGN isn’t among the 30 most popular stocks among hedge funds.

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 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 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 our short portfolio.

John Overdeck of Two Sigma

Let’s go over the new hedge fund action encompassing Amgen, Inc. (NASDAQ:AMGN).

What does the smart money think about Amgen, Inc. (NASDAQ:AMGN)?

At Q4’s end, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the previous quarter. By comparison, 44 hedge funds held shares or bullish call options in AMGN a year ago. Overall, hedge fund sentiment over the last 3.5 years is getting bearish though. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

AMGN_mar2019

More specifically, Renaissance Technologies was the largest shareholder of Amgen, Inc. (NASDAQ:AMGN), with a stake worth $696.6 million reported as of the end of September. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $600.6 million. Two Sigma Advisors, Pzena Investment Management, and Arrowstreet Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Now, key money managers were breaking ground themselves. Chiron Investment Management, managed by Ryan Caldwell, established the most outsized position in Amgen, Inc. (NASDAQ:AMGN). Chiron Investment Management had $56.9 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $19.8 million investment in the stock during the quarter. The following funds were also among the new AMGN investors: Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, Nick Niell’s Arrowgrass Capital Partners, and Arthur B Cohen and Joseph Healey’s Healthcor Management LP.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Amgen, Inc. (NASDAQ:AMGN) but similarly valued. We will take a look at DowDuPont Inc. (NYSE:DWDP), Eli Lilly and Company (NYSE:LLY), SAP SE (NYSE:SAP), and Medtronic plc (NYSE:MDT). This group of stocks’ market valuations match AMGN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DWDP 67 3444105 -2
LLY 47 2100204 7
SAP 14 1337479 2
MDT 55 2521051 2
Average 45.75 2350710 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 45.75 hedge funds with bullish positions and the average amount invested in these stocks was $2351 million. That figure was $3086 million in AMGN’s case. DowDuPont Inc. (NYSE:DWDP) is the most popular stock in this table. On the other hand SAP SE (NYSE:SAP) is the least popular one with only 14 bullish hedge fund positions. Amgen, Inc. (NASDAQ:AMGN) is not the most popular stock in this group and hedge fund interest is on a downward trajectory over the last 3.5 years. 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 AMGN wasn’t in this group. Hedge funds that bet on AMGN were disappointed as the stock lost 1% 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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