Here’s What Hedge Funds Think About Illumina, Inc. (ILMN)

Nina Todic

Mon, Jun 10, 2019, 6:19 PM

Is Illumina, Inc. (NASDAQ:ILMN) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Illumina, Inc. (NASDAQ:ILMN) a buy, sell, or hold? The smart money is taking a bearish view. The number of long hedge fund positions fell by 2 lately. Our calculations also showed that ilmn isn't among the 30 most popular stocks among hedge funds. ILMN was in 42 hedge funds' portfolios at the end of the first quarter of 2019. There were 44 hedge funds in our database with ILMN holdings at the end of the previous quarter.

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.

Let's review the new hedge fund action regarding Illumina, Inc. (NASDAQ:ILMN).

Hedge fund activity in Illumina, Inc. (NASDAQ:ILMN)

Heading into the second quarter of 2019, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. By comparison, 35 hedge funds held shares or bullish call options in ILMN 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, Viking Global was the largest shareholder of Illumina, Inc. (NASDAQ:ILMN), with a stake worth $367.3 million reported as of the end of March. Trailing Viking Global was Arrowstreet Capital, which amassed a stake valued at $127.6 million. AQR Capital Management, OrbiMed Advisors, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as Illumina, Inc. (NASDAQ:ILMN) has witnessed declining sentiment from the smart money, it's safe to say that there lies a certain "tier" of hedgies that decided to sell off their entire stakes in the third quarter. Interestingly, Matthew Hulsizer's PEAK6 Capital Management said goodbye to the biggest stake of the 700 funds watched by Insider Monkey, comprising close to $32 million in stock, and Howard Marks's Oaktree Capital Management was right behind this move, as the fund dumped about $21.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 2 funds in the third quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Illumina, Inc. (NASDAQ:ILMN) but similarly valued. These stocks are Prologis Inc (NYSE:PLD), China Telecom Corporation Limited (NYSE:CHA), Kinder Morgan Inc (NYSE:KMI), and Regeneron Pharmaceuticals Inc (NASDAQ:REGN). This group of stocks' market caps resemble ILMN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PLD,25,454133,-5 CHA,8,26501,0 KMI,36,1728965,-12 REGN,31,900292,-4 Average,25,777473,-5.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $777 million. That figure was $1065 million in ILMN's case. Kinder Morgan Inc (NYSE:KMI) is the most popular stock in this table. On the other hand China Telecom Corporation Limited (NYSE:CHA) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Illumina, Inc. (NASDAQ:ILMN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on ILMN, though not to the same extent, as the stock returned 0.2% during the same period and outperformed the market as well.

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

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