Do Hedge Funds Love Smith & Nephew plc (SNN)?

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The fourth quarter of 2018 is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 7 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Smith & Nephew plc (NYSE:SNN).

Is Smith & Nephew plc (NYSE:SNN) a bargain? The best stock pickers are in a bullish mood. The number of bullish hedge fund positions improved by 2 lately. Our calculations also showed that SNN isn't among the 30 most popular stocks among hedge funds. SNN was in 11 hedge funds' portfolios at the end of December. There were 9 hedge funds in our database with SNN holdings at the end of the previous quarter.

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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Let's take a gander at the new hedge fund action regarding Smith & Nephew plc (NYSE:SNN).

What have hedge funds been doing with Smith & Nephew plc (NYSE:SNN)?

Heading into the first quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SNN over the last 14 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

More specifically, Arrowstreet Capital was the largest shareholder of Smith & Nephew plc (NYSE:SNN), with a stake worth $157.5 million reported as of the end of September. Trailing Arrowstreet Capital was Iridian Asset Management, which amassed a stake valued at $100.6 million. Fisher Asset Management, Millennium Management, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.