Were Hedge Funds Right About Betting On Bristol-Myers Squibb Company (BMY)?

Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees during the first half of 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the second quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Bristol-Myers Squibb Company (NYSE:BMY).

Bristol-Myers Squibb Company (NYSE:BMY) was in 65 hedge funds' portfolios at the end of June. BMY has seen a decrease in hedge fund sentiment of late though overall hedge fund sentiment is still quite bullish. There were 71 hedge funds in our database with BMY holdings at the end of the previous quarter. Our calculations also showed that BMY isn't among the 30 most popular stocks among hedge funds (see the video at the end of this article).

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 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 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.

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's check out the latest hedge fund action surrounding Bristol-Myers Squibb Company (NYSE:BMY).

What have hedge funds been doing with Bristol-Myers Squibb Company (NYSE:BMY)?

Heading into the third quarter of 2019, a total of 65 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from one quarter earlier. On the other hand, there were a total of 45 hedge funds with a bullish position in BMY a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Bristol-Myers Squibb Company (NYSE:BMY), which was worth $938.7 million at the end of the second quarter. On the second spot was Baupost Group which amassed $589.6 million worth of shares. Moreover, Arrowstreet Capital, Two Sigma Advisors, and AQR Capital Management were also bullish on Bristol-Myers Squibb Company (NYSE:BMY), allocating a large percentage of their portfolios to this stock.

Because Bristol-Myers Squibb Company (NYSE:BMY) has experienced declining sentiment from the smart money, it's safe to say that there is a sect of money managers that elected to cut their full holdings last quarter. Interestingly, Paul Singer's Elliott Management dropped the largest stake of all the hedgies followed by Insider Monkey, valued at about $155.1 million in stock, and Zach Schreiber's Point State Capital was right behind this move, as the fund said goodbye to about $107.1 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 6 funds last quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Bristol-Myers Squibb Company (NYSE:BMY) but similarly valued. We will take a look at The Goldman Sachs Group, Inc. (NYSE:GS), Uber Technologies, Inc. (NYSE:UBER), Banco Santander, S.A. (NYSE:SAN), and Ambev SA (NYSE:ABEV). This group of stocks' market valuations resemble BMY's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GS,61,8200703,-15 UBER,56,5766639,56 SAN,22,701860,-1 ABEV,16,294772,3 Average,38.75,3740994,10.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.75 hedge funds with bullish positions and the average amount invested in these stocks was $3741 million. That figure was $3886 million in BMY's case. The Goldman Sachs Group, Inc. (NYSE:GS) is the most popular stock in this table. On the other hand Ambev SA (NYSE:ABEV) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Bristol-Myers Squibb Company (NYSE:BMY) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on BMY as the stock returned 12.8% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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