Were Hedge Funds Right About Eli Lilly and Company (LLY)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Eli Lilly and Company (NYSE:LLY)? The smart money sentiment can provide an answer to this question.

Eli Lilly and Company (NYSE:LLY) was in 47 hedge funds’ portfolios at the end of December. LLY has seen an increase in support from the world’s most elite money managers in recent months. There were 40 hedge funds in our database with LLY holdings at the end of the previous quarter. Our calculations also showed that LLY isn’t among the 30 most popular stocks among hedge funds.

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 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.


Let’s take a gander at the latest hedge fund action regarding Eli Lilly and Company (NYSE:LLY).

What have hedge funds been doing with Eli Lilly and Company (NYSE:LLY)?

At the end of the fourth quarter, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LLY over the last 14 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


According to Insider Monkey’s hedge fund database, Ken Fisher’s Fisher Asset Management has the biggest position in Eli Lilly and Company (NYSE:LLY), worth close to $443.7 million, accounting for 0.6% of its total 13F portfolio. The second most bullish fund manager is AQR Capital Management, managed by Cliff Asness, which holds a $417.9 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Other professional money managers that are bullish contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Israel Englander’s Millennium Management and D. E. Shaw’s D E Shaw.

As aggregate interest increased, some big names were leading the bulls’ herd. Element Capital Management, managed by Jeffrey Talpins, assembled the largest position in Eli Lilly and Company (NYSE:LLY). Element Capital Management had $16.3 million invested in the company at the end of the quarter. Chris Rokos’s Rokos Capital Management also made a $9 million investment in the stock during the quarter. The other funds with brand new LLY positions are David Costen Haley’s HBK Investments, David Harding’s Winton Capital Management, and Deepak Gulati’s Argentiere Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Eli Lilly and Company (NYSE:LLY) but similarly valued. We will take a look at SAP SE (NYSE:SAP), Medtronic plc (NYSE:MDT), BHP Billiton Limited (NYSE:BHP), and NIKE, Inc. (NYSE:NKE). This group of stocks’ market caps are similar to LLY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SAP 14 1337479 2
MDT 55 2521051 2
BHP 15 845964 -4
NKE 61 1940745 15
Average 36.25 1661310 3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.25 hedge funds with bullish positions and the average amount invested in these stocks was $1661 million. That figure was $2100 million in LLY’s case. NIKE, Inc. (NYSE:NKE) 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. Eli Lilly and Company (NYSE:LLY) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 LLY wasn’t in this group. Hedge funds that bet on LLY were disappointed as the stock returned 7.7% 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.