Were Hedge Funds Right About Novartis AG (NVS)?

As we already know from media reports and hedge fund investor letters, many hedge funds lost money in fourth quarter, blaming macroeconomic conditions and unpredictable events that hit several sectors, with technology among them. Nevertheless, most investors decided to stick to their bullish theses and their long-term focus allows us to profit from the recent declines. In particular, let’s take a look at what hedge funds think about Novartis AG (NYSE:NVS) in this article.

Novartis AG (NYSE:NVS) investors should be aware of an increase in hedge fund sentiment lately. NVS was in 34 hedge funds’ portfolios at the end of December. There were 29 hedge funds in our database with NVS holdings at the end of the previous quarter. Our calculations also showed that NVS 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.


We’re going to check out the latest hedge fund action surrounding Novartis AG (NYSE:NVS).

How are hedge funds trading Novartis AG (NYSE:NVS)?

At the end of the fourth quarter, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from one quarter earlier. On the other hand, there were a total of 27 hedge funds with a bullish position in NVS a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


More specifically, Fisher Asset Management was the largest shareholder of Novartis AG (NYSE:NVS), with a stake worth $653 million reported as of the end of September. Trailing Fisher Asset Management was Renaissance Technologies, which amassed a stake valued at $300 million. Arrowstreet Capital, Point72 Asset Management, and Brookside Capital were also very fond of the stock, giving the stock large weights in their portfolios.

As aggregate interest increased, key hedge funds have been driving this bullishness. Senator Investment Group, managed by Doug Silverman and Alexander Klabin, assembled the largest position in Novartis AG (NYSE:NVS). Senator Investment Group had $30.9 million invested in the company at the end of the quarter. Ori Hershkovitz’s Nexthera Capital also made a $27.1 million investment in the stock during the quarter. The following funds were also among the new NVS investors: Phill Gross and Robert Atchinson’s Adage Capital Management, Joseph Samuels’s Islet Management, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s go over hedge fund activity in other stocks similar to Novartis AG (NYSE:NVS). These stocks are China Mobile Limited (NYSE:CHL), Cisco Systems, Inc. (NASDAQ:CSCO), The Home Depot, Inc. (NYSE:HD), and Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM). This group of stocks’ market valuations are similar to NVS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CHL 14 450334 -1
CSCO 55 3238755 -3
HD 58 3964549 1
TSM 37 4006558 -5
Average 41 2915049 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 41 hedge funds with bullish positions and the average amount invested in these stocks was $2915 million. That figure was $1827 million in NVS’s case. The Home Depot, Inc. (NYSE:HD) is the most popular stock in this table. On the other hand China Mobile Limited (NYSE:CHL) is the least popular one with only 14 bullish hedge fund positions. Novartis AG (NYSE:NVS) is not the least popular stock in this group but hedge fund interest is still below average. So, overall hedge fund sentiment is bearish to neutral. 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 NVS wasn’t in this group. Hedge funds that bet on NVS were disappointed as the stock returned 12.2% 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.