Were Hedge Funds Right About Buying Novo Nordisk A/S (NVO)?

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.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Novo Nordisk A/S (NYSE:NVO) based on those filings.

Is Novo Nordisk A/S (NYSE:NVO) worth your attention right now? Money managers are getting more bullish. The number of long hedge fund bets moved up by 2 in recent months. Our calculations also showed that NVO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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’ 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 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.


Jim Simons of Renaissance Technologies

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now let’s take a peek at the latest hedge fund action regarding Novo Nordisk A/S (NYSE:NVO).

How are hedge funds trading Novo Nordisk A/S (NYSE:NVO)?

Heading into the first quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the third quarter of 2019. By comparison, 18 hedge funds held shares or bullish call options in NVO a year ago. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Is NVO A Good Stock To Buy?

The largest stake in Novo Nordisk A/S (NYSE:NVO) was held by Renaissance Technologies, which reported holding $1517.4 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $873.3 million position. Other investors bullish on the company included Arrowstreet Capital, Markel Gayner Asset Management, and Alyeska Investment Group. In terms of the portfolio weights assigned to each position HighVista Strategies allocated the biggest weight to Novo Nordisk A/S (NYSE:NVO), around 1.18% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 1.17 percent of its 13F equity portfolio to NVO.

As one would reasonably expect, specific money managers were breaking ground themselves. Two Sigma Advisors, managed by John Overdeck and David Siegel, assembled the most valuable position in Novo Nordisk A/S (NYSE:NVO). Two Sigma Advisors had $8 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $3.4 million investment in the stock during the quarter. The following funds were also among the new NVO investors: Bhagwan Jay Rao’s Integral Health Asset Management, Matthew Tewksbury’s Stevens Capital Management, and Robert B. Gillam’s McKinley Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Novo Nordisk A/S (NYSE:NVO). We will take a look at Accenture Plc (NYSE:ACN), Philip Morris International Inc. (NYSE:PM), AbbVie Inc (NYSE:ABBV), and AstraZeneca plc (NYSE:AZN). This group of stocks’ market caps resemble NVO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ACN 41 1208829 -4
PM 57 3240766 -3
ABBV 71 5288422 3
AZN 32 1901127 4
Average 50.25 2909786 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 50.25 hedge funds with bullish positions and the average amount invested in these stocks was $2910 million. That figure was $2936 million in NVO’s case. AbbVie Inc (NYSE:ABBV) is the most popular stock in this table. On the other hand AstraZeneca plc (NYSE:AZN) is the least popular one with only 32 bullish hedge fund positions. Compared to these stocks Novo Nordisk A/S (NYSE:NVO) is even less popular than AZN. Hedge funds clearly dropped the ball on NVO as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on NVO as the stock returned 0% during the same time period and outperformed the market by an even larger margin.

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