As we are entering into the second quarter of 2015, it’s time to take a brief look back and see how the market performed during the first three months of the year, and most importantly if investors have been right in their bets. With this in mind, we have determined five stocks that have market capitalizations of over $100 billion that have performed exceptionally well, generating returns north of 10% during the first quarter. The companies that we are going to talk about are: Novo Nordisk A/S (ADR) (NYSE:NVO), Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL), Pfizer Inc. (NYSE:PFE), and China Life Insurance Company Ltd. (ADR) (NYSE:LFC). You might be wondering why we are doing this and the reason is pretty simple. We are analyzing tons of data after the end of each round of 13F filings and try to identify some of the best picks that could help other investors to build a portfolio that would be able to beat the market.
Even though these stocks had an equally-weighted average return of more than 17.28% for the first quarter while the S&P 500 ETF (SPY) inched up by only 0.90% during the same period, these companies are more of an exception to the general rule. Hedge funds and other big money managers prefer to hold the largest amounts of capital invested in large and mega-cap stocks because these companies allow a much larger capital allocation, which is important taking into account that the global hedge fund industry has swollen to nearly $3.0 trillion. That’s why if we take a look at the most popular stocks among hedge funds (we track more than 700 in our database), we won’t find any mid- or small-cap stocks there. However, our backtests of hedge funds’ equity portfolios between 1999 and 2012 revealed that the 50 most popular stocks among hedge funds underperformed the market by 7 basis points per month, while in the last two years, equity hedge funds had average returns of 11.1% and 1.4%, which shows that an investor was better off by allocating their money into an index fund such as the S&P 500 ETF (SPY), which returned 32.3% and 13.5% during the same period. However, we consider that we can combine the pricing inefficiencies among small-cap picks with hedge fund managers’ expertise and obtain significant results. This was confirmed through backtesting and in forward tests since 2012, as this strategy, which involves imitating the most popular small-cap picks among hedge funds managed to provide gains of 132% (read more details here), beating the broader market by some 79 percentage points.
So, let’s get back to our “exceptions” from the rule and see these five mega-cap stocks and what hedge funds “think” about them. On the first spot is Novo Nordisk A/S (ADR) (NYSE:NVO), which jumped by 28.13% during the first quarter. Novo Nordisk is a $143 billion biotechnology company, which is enough to explain why it is on the top of this list. The Biotech industry has been very hot lately and the majority of top gainers among companies with market capitalizations above $1.0 billion, are biotech stocks. Novo Nordisk is the third largest company from the industry, being outrun by Gilead Sciences, Inc. (NASDAQ:GILD) and Roche Holdings in terms of size, but its stock had the highest gains among all three. However, despite a significant appreciation of the stock, Novo Nordisk A/S (ADR) (NYSE:NVO) has recently announced a buyback program of up to 15 million Danish Krones ($2.16 billion) to be conducted within the next ten months (until January 30, 2016).
Hedge funds are not particularly excited about Novo Nordisk A/S (ADR) (NYSE:NVO) as the latest round of 13F filings showed. Overall, 18 funds disclosed long positions in the company with an aggregate value of $1.59 billion, but none of the funds that we track hold more than 1.60% of their equity portfolios invested in the company, probably because of its large size and expensive shares. However, billionaire Jim Simons’ Renaissance Technologies owns 15.61 million shares of Novo Nordisk A/S (ADR) (NYSE:NVO) as of the end of 2014, the $660.81 million stake being the second-largest in its equity portfolio.
On the second spot stands Amazon.com, Inc. (NASDAQ:AMZN), the stock of the e-commerce company gaining nearly 20% during the first three months of 2015. Amazon’s stock jumped mainly on the back of its financial results for the fourth quarter, with earnings beating the consensus estimates, though sales did come in slightly below the forecasts. Another recent development that might make investors and consumers excited is Amazon’s plans to introduce a so-called “dash button”, a one-button controller that would allow for the ordering of certain products with a simple press of a button.
Amazon.com, Inc. (NASDAQ:AMZN) also doesn’t rank very highly in terms of popularity among hedge funds (probably due to the high price of the stock), since 76 funds hold around $5.91 billion worth of stock as of the end of 2014, but these figures appreciated significantly during the fourth quarter from 66 funds with $4.49 billion worth of stock at the end of September. Billionaire Ken Fisher’s Fisher Asset Management is among the top shareholders of Amazon.com, Inc. (NASDAQ:AMZN) holding 2.42 million shares as of the end of 2014.
Next in line is another tech giant, Apple Inc. (NASDAQ:AAPL), which gained 13.20% in the first three months of 2015 on the back of several major developments. First, the company reported excellent results for the fourth quarter, with sales of its new iPhone reaching an outstanding 75 million (with a gross margin of 40%). Then Apple announced that it will release its new Apple Watch in April, and analysts are forecasting large sales figures for the device, some of the models of which can reach a price tag of $17,000. Just to give you an idea about the potential sales, it is expected that Apple Inc. (NASDAQ:AAPL) will consume 746 tonnes of gold per year for its gold watch, which would place the $700 billion tech company as the third-largest consumer of gold behind India and China.
Another thing that made everybody excited about Apple Inc. (NASDAQ:AAPL) recently is its solid financial position, with $180 billion in cash on its balance sheet. This pile of money sparked tons of rumors and speculation regarding what the company could do with it, including the acquisition of Tesla Motors Inc (NASDAQ:TSLA), which most likely is not going to happen, at least not in the predictable future. However, Tim Cook will probably use the money to return some capital to shareholders, as one of those shareholders, Carl Icahn, insisted last year. In addition, Apple Inc. (NASDAQ:AAPL) is the favorite stock of hedge funds as of the end of 2014 and Mr. Icahn holds the largest stake among 149 funds, which contains 52.76 million shares.
Finally, Pfizer Inc. (NYSE:PFE) and China Life Insurance Company Ltd. (ADR) (NYSE:LFC) appreciated by 12.66% and 12.55%, respectively. Pfizer is another biopharmaceutical company, though one that struggled during the fourth quarter, reporting lower sales and earnings. The company’s financial results have been deteriorating for the past several years, in fact, mainly because of the large amount of generic drugs invading the market. However, Pfizer Inc. (NYSE:PFE) has been making up for the lost market share by expanding its portfolio through acquisitions, and it plans to reduce its R&D budget, which will add more value. At the end of 2014, 86 funds held around $4.68 billion worth of Pfizer Inc. (NYSE:PFE)’s stock, including Fisher Asset Management, which owns 31.20 million shares, according to its latest 13F filing.
China Life Insurance Company Ltd. (ADR) (NYSE:LFC) is a $128 billion life insurance company, in which only nine funds reported long positions, which amass less than 1% of their equity portfolios. This low level of popularity is interesting because the stock has had a strong run so far. However, the company has been losing market share, which amounted to 26% last year, versus 30% in 2013. China Life Insurance Company Ltd. (ADR) (NYSE:LFC) is expected to keep losing ground to smaller insurance companies, and despite earnings growth, it has been lagging behind its peers from the region. The largest stake in China Life Insurance Company Ltd. (ADR) (NYSE:LFC) among the funds that we track is held by Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, which owns 1.05 million shares, while other funds hold under 70,000 shares.
Disclosure: None
