Arrowstreet Capital Gets Hype for Tech, Materials Stocks

While most hedge funds are going through a turbulent time amid a decline in their performance and rising redemptions by investors, Boston-based quant hedge fund Arrowstreet Capital has been growing steadily. The Boston-based hedge fund started by Peter Rathjens, Bruce Clarke, and Harvard professor John Campbell in 1999 has seen its assets under management rise by more than 17.5% since May last year to almost $65 billion, as of June 30, 2016.

The fund’s recently-submitted 13F filing for the second quarter revealed that it significantly increased its exposure to US equities during the second quarter. At the end of June, its equity portfolio was worth $30.27 billion, up by 28.2% on the quarter. The filing also showed that during the second quarter the fund became more bullish on the technology and material sectors, which amassed 21% and 13% of its equity portfolio, respectively, at the end of June, compared to 17% and 4%, respectively, a quarter earlier.. Considering the fund’s bullishness on these two sectors, in this post, we will take a look at five stocks, in which Arrowstreet Capital significantly boosted its holdings during the second quarter.

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Apple Inc. (NASDAQ:AAPL)

– Shares Owned by Arrowstreet Capital (as of June 30): 2.78 Million

– Value of The Holding (as of June  30): $266.55 Million

Let’s start with Apple Inc. (NASDAQ:AAPL), which was a new entrant in Arrowstreet Capital’s equity portfolio in the second quarter. The fund would be pleased with its decision of initiating a stake in the tech behemoth as shares of Apple Inc. (NASDAQ:AAPL) have appreciated by 18.77% so far in the third quarter, but are up by only 6% year-to-date. A lot of the gains that the stock has seen in this quarter have come in the last few days after reports emerged showing that the demand for the company’s recently released iPhone 7 is much more than what analysts had originally anticipated.  This changing view on the demand has prompted several analysts to boost their price target on the stock this week, including analysts at Nomura, who raised the target to $135 from $120 and reaffirmed their ‘Buy’ rating. On September 21, the Financial Times reported that Apple has approached British sports car manufacturer McLaren Automotive for a takeover or strategic investment. However, a McLaren spokesman, while talking to BBC, denied this development. At the end of June, there were 116 hedge funds covered by us that were long Apple with the aggregate value of their holdings amounting to $10.67 billion.

Goldcorp Inc. (USA) (NYSE:GG)

– Shares Owned by Arrowstreet Capital (as of June 30): 16.40 Million

– Value of The Holding (as of June  30): $313.22 Million

Moving on, Arrowstreet Capital increased its stake in Goldcorp Inc. (USA) (NYSE:GG) by 445% during the second quarter. Billionaire Ray Dalio‘s Bridgewater Associates also upped its stake in the company during that time, by 79% to 172 million shares. Goldcorp Inc. (USA) (NYSE:GG)’s stock saw a 7% spike on September 21 after the Federal Reserve announced that it will be keeping the short-term interest rate unchanged for the time being. Taking that gain into account, the stock is now up by 46% year-to-date. However, the stock has underperformed its peers in the recent months and several analysts expect that underperformance to continue because the company’s production costs are much higher when compared to its peers and even if it manages to bring them down, its margins will still be lower than other precious metal mining companies. During the April-June period, the ownership of  Goldcorp Inc. (USA) among funds covered by us fell to 28 from 33, but the aggregate value of their holdings jumped to $1.46 billion from $1.02 billion.

Barrick Gold Corporation (USA) (NYSE:ABX)

– Shares Owned by Arrowstreet Capital (as of June 30): 20.30 Million

– Value of The Holding (as of June  30): $432.76 Million

Barrick Gold Corporation (USA) (NYSE:ABX) was another gold mining stock in which Arrowstreet Capital boosted its stake during the second quarter, by 231%. Shares of the Ontario-based gold mining company have appreciated by 153.6% year-to-date, but some analysts expect it to soon undergo a correction. The reason for their pessimism stems from the recent chemical spill at Barrick Gold Corporation (USA) (NYSE:ABX)’s Veladero mine in Argentina, which is costing the company $2 million a day in lost revenues and can have adverse ramifications on its other developments in the region. On September 7, analysts at Berenberg Bank initiated coverage on the stock with a ‘Sell’ rating and $13.50 price target, which represents a potential downside of 18.67% from its current trading price. The number of hedge funds covered by us that were long Barrick Gold Corporation (USA) increased by four to 53 during the second quarter, while the aggregate value of their holdings in it rose 40% to $3.84 billion.

Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM)

– Shares Owned by Arrowstreet Capital (as of June 30): 16.85 Million

– Value of The Holding (as of June  30): $441.90 Million

Though its stock ended the second quarter flat, Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) jumped from the 12th to the fourth spot in Arrowstreet Capital’s equity portfolio during that period owing to a 68% increase that fund made to its stake in the company. Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM)’s stock is currently trading up by 34.44% year-to-date and very close to its lifetime high. The company is expected to report its third quarter numbers in  the middle of next month and the current consensus estimates among analysts are for EPS of $0.57 and revenue of $7.99 billion. For the same quarter of the previous year, Taiwan Semiconductor had reported EPS of $0.46 on revenue of $6.67 billion. At the start of this week, analysts at Bank of America Corp. reiterated their ‘Buy’ rating on the stock. Hedge funds covered by us were collectively less bullish on the company going into the third quarter as its ownership among them fell by four to 26 and the aggregate value of their holdings in it saw a marginal decline during the April-June period.

Facebook Inc (NASDAQ:FB)

– Shares Owned by Arrowstreet Capital (as of June 30): 9.07 Million

– Value of The Holding (as of June  30): $1.04 Billion

With Arrowstreet Capital increasing its stake in the company by 94% during the second quarter, Facebook Inc (NASDAQ:FB) ended up becoming the fund’s top stock pick at the end of June. Shares of the social media giant have continued the bull run they started in mid-2013 and have advanced by 22.6% so far in 2016. Owing to the continued growth being displayed by the several platforms owned by the company, its push towards mobile commerce and international expansion, most analysts expect the stock to move even higher going forward. The 47 leading analysts and research firms on the Street who cover Facebook Inc (NASDAQ:FB) currently have an average rating of ‘Buy’ and an average price target of $154.12 on it, which represents a potential upside of 18.55% from its current trading price. Hedge funds tracked by us are equally buoyant about the stock. At the end of June, Facebook was the most popular stock among them, with 148, of the over 740 hedge funds we cover, reporting a stake in it and the aggregate value of their holdings in it amounting to $15.24 billion.

Disclosure: None