Were Hedge Funds Right About Medtronic, plc (MDT)?

Abigail Fisher

Tue, Mar 26, 2019, 7:11 PM

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors' consensus picks have done well on average over the long-term. The top 15 S&P 500 stocks among hedge funds at the end of September 2018 returned an average of 1% through March 15th whereas the S&P 500 Index ETF lost 2.2% during the same period. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Medtronic, plc (NYSE:MDT) from the perspective of those elite funds.

Medtronic, plc (NYSE:MDT) investors should be aware of an increase in hedge fund sentiment of late. Our calculations also showed that MDT isn't among the 30 most popular stocks among hedge funds.

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 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.

Let's view the latest hedge fund action encompassing Medtronic, plc (NYSE:MDT).

What does the smart money think about Medtronic, plc (NYSE:MDT)?

At the end of the fourth quarter, a total of 55 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the previous quarter. On the other hand, there were a total of 36 hedge funds with a bullish position in MDT a year ago. With the smart money's sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

According to Insider Monkey's hedge fund database, Citadel Investment Group, managed by Ken Griffin, holds the largest position in Medtronic, plc (NYSE:MDT). Citadel Investment Group has a $363.6 million position in the stock, comprising 0.2% of its 13F portfolio. Coming in second is Ric Dillon of Diamond Hill Capital, with a $353.5 million position; 2.1% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that are bullish consist of Cliff Asness's AQR Capital Management, Noam Gottesman's GLG Partners and D. E. Shaw's D E Shaw.

As aggregate interest increased, some big names were breaking ground themselves. Redmile Group, managed by Jeremy Green, created the biggest position in Medtronic, plc (NYSE:MDT). Redmile Group had $38.2 million invested in the company at the end of the quarter. David Costen Haley's HBK Investments also initiated a $13.2 million position during the quarter. The following funds were also among the new MDT investors: Lee Ainslie's Maverick Capital and Benjamin A. Smith's Laurion Capital Management.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Medtronic, plc (NYSE:MDT) but similarly valued. We will take a look at BHP Group (NYSE:BHP), NIKE, Inc. (NYSE:NKE), Netflix, Inc. (NASDAQ:NFLX), and PetroChina Company Limited (NYSE:PTR). This group of stocks' market values resemble MDT's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BHP,15,845964,-4 NKE,61,1940745,15 NFLX,83,6533718,-1 PTR,14,133715,0 Average,43.25,2363536,2.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.25 hedge funds with bullish positions and the average amount invested in these stocks was $2364 million. That figure was $2521 million in MDT's case. Netflix, Inc. (NASDAQ:NFLX) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 14 bullish hedge fund positions. Medtronic, plc (NYSE:MDT) 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 WFC wasn't in this group. Hedge funds that bet on WFC were disappointed as the stock returned 10.9% 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.

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