Were Hedge Funds Right About Piling Into Bristol Myers Squibb Company (BMY)?

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We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of March 31st, near the height of the coronavirus market crash. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Bristol Myers Squibb Company (NYSE:BMY) and determine whether the smart money was really smart about this stock.

Is Bristol Myers Squibb Company (NYSE:BMY) the right investment to pursue these days? The best stock pickers were getting more bullish. The number of long hedge fund positions rose by 4 in Q1 and reached its all time high. Our calculations also showed that BMY ranked 9th among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 58 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Aaron Cowen of Suvretta Capital Management

Aaron Cowen Suvretta Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to review the key hedge fund action surrounding Bristol Myers Squibb Company (NYSE:BMY).

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

At Q1's end, a total of 126 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the fourth quarter of 2019. On the other hand, there were a total of 71 hedge funds with a bullish position in BMY a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Bristol Myers Squibb Company (NYSE:BMY), with a stake worth $3678.4 million reported as of the end of September. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $223.2 million. Pentwater Capital Management, Laurion Capital Management, and Laurion Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Birchview Capital allocated the biggest weight to Bristol Myers Squibb Company (NYSE:BMY), around 38.85% of its 13F portfolio. Copernicus Capital Management is also relatively very bullish on the stock, setting aside 11.94 percent of its 13F equity portfolio to BMY.

With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Laurion Capital Management, managed by Benjamin A. Smith, assembled the largest position in Bristol Myers Squibb Company (NYSE:BMY). Laurion Capital Management had $175.7 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also made a $123 million investment in the stock during the quarter. The other funds with brand new BMY positions are Doron Breen and Mori Arkin's Sphera Global Healthcare Fund, Henrik Rhenman's Rhenman & Partners Asset Management, and Aaron Cowen's Suvretta Capital Management.

Let's also examine 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 Costco Wholesale Corporation (NASDAQ:COST), McDonald's Corporation (NYSE:MCD), Medtronic plc (NYSE:MDT), and Amgen, Inc. (NASDAQ:AMGN). This group of stocks' market caps resemble BMY's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COST,68,4351741,-2 MCD,66,953580,9 MDT,59,1839749,-7 AMGN,52,2056537,-6 Average,61.25,2300402,-1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 61.25 hedge funds with bullish positions and the average amount invested in these stocks was $2300 million. That figure was $6887 million in BMY's case. Costco Wholesale Corporation (NASDAQ:COST) is the most popular stock in this table. On the other hand Amgen, Inc. (NASDAQ:AMGN) is the least popular one with only 52 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. Unfortunately BMY wasn't nearly as successful as these 10 stocks and hedge funds that were betting on BMY were disappointed as the stock returned 5.2% during the second quarter (through June 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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