We recently compiled a list of the 10 Stocks Dominating a Billionaire Quant’s Investment Strategy. In this article, we are going to take a look at where Eli Lilly and Company (NYSE:LLY) stands against the other stocks that are dominating a billionaire quant’s investment strategy.
AQR Capital Management is a global investment management firm, founded by Cliff Asness in 1998, dedicated to delivering positive outcomes for its clients. AQR Capital Management has spent over two decades exploring market forces and applying insights to manage client portfolios effectively and has placed itself at the core of economics, behavioral finance, data, and technology.
Cliff Asness, a renowned figure in finance, is the Founder, Managing Principal, and Chief Investment Officer at AQR Capital Management. He is recognized for his extensive research and contributions to financial literature with many awards to his name including multiple Bernstein Fabozzi/Jacobs Levy Awards, Graham and Dodd Awards, and the prestigious 2020 Fama/DFA Prize for Capital Markets and Asset Pricing. Asness’ career began at Goldman, Sachs & Co., where he served as Managing Director and Director of Quantitative Research before founding AQR. He actively participates in professional organizations and serves on boards such as The Journal of Portfolio Management, Courant Institute of Mathematical Finance at NYU, Q-Group, and The National WWII Museum.
Asness started with a $10 million investment from a small group of investors in 1995 and rapidly expanded the Goldman Sachs Global Alpha Fund using quantitative strategies thereby increasing its assets to over $100 million within months. After Asness left Goldman Sachs in 1998 to establish his own hedge fund, the Alpha Fund continued to grow, reaching assets totaling $12 billion by 2007. Asness, a former doctoral student under Nobel laureate Eugene Fama, saw shifts in market efficiency over his career, through meme stocks and valuation disparities post-pandemic. He believes there’s ongoing potential in value investing, as opposed to less than three years ago when opportunities were more noticeable.
AQR, short for Applied Quantitative Research, operates as a hedge fund managing discretionary assets valued at $119.9 billion as of August 2023, according to their Form ADV filing. Their latest 13F filing for Q2 2023 disclosed a portfolio value $48.4 billion in 13F securities, with a top 10 holdings concentration of 14.42%. AQR manages around $8 billion of its total $99 billion assets under management in an emerging-market equities portfolio, employing a collaborative approach similar to its other funds. This strategy, which diversifies away from the dominance of US stocks, positions AQR alongside industry leaders like Morgan Stanley Investment Management. AQR’s multi-strategy offerings achieved a 13.5% gain year-to-date through April 2024, following a 16% return in 2023. As global interest rates remain elevated, creating opportunities for hedge funds, AQR’s futures-trading strategies have thrived amidst market volatility.
AQR Capital Management is gradually integrating machine-driven strategies aiming to enhance performance and adapt to market dynamics. Despite initial skepticism towards machine learning in investing, AQR has expanded into trend-following strategies, including tracking fundamental signals and venturing into niche markets such as Malaysian palm oil and milk. Speaking at the Bloomberg Invest conference in New York, Asness emphasised that recent improvements in the firm’s performance reflect not only market cycles but also strategic adjustments.
“We let the machine decide more,”
Asness emphasized, noting his confidence in machine-based decision-making over human intuition.
Our Methodology:
Stocks mentioned in this article were picked from the investment portfolio of AQR Capital Management at the end of the third quarter of 2024. In order to provide readers with a more comprehensive overview of the companies, the analyst ratings for each firm are mentioned alongside other details. A database of around 900 elite hedge funds tracked by Insider Monkey in the third quarter of 2024 was used to quantify the popularity of each stock in the hedge fund universe.
At the end of the first quarter Cisco Systems (CSCO) was among billionaire Asness’ top 10 holdings. Here is how we explained why Asness might have been investing in Cisco Systems stock at the time:
“Recently Cisco Systems, Inc. (NASDAQ:CSCO) formed a partnership with Nvidia to advance generative AI applications and unveiled a $1 billion fund to invest in AI startups. Furthermore, it believes that the AI switching market is expected to surpass $10 billion within three years. Cisco’s AI portfolio includes cybersecurity solutions and AI infrastructure.
Recently in Q3, Cisco increased its full-year revenue guidance supported by strong financial results surpassing analysts estimates of EPS by 7.3% and revenue by 5.50%. Thus, analysts at Bank of America and Morgan Stanley have issued favorable ratings and price targets of $60 and $58, respectively, on the back of Cisco’s strong performance and achievable earnings projections for 2025.”
CSCO stock didn’t perform well in Q2 and well into the third quarter and Cliff Asness has been trimming his position since the end of Q1. CSCO stock didn’t go anywhere until mid August but returned 30% since then. Billionaire Cliff Asness preferred to invest his proceeds from CSCO sale into a more promising stock, Eli Lilly (LLY).
An array of pharmaceutical pills with the company’s logo on the bottle.
Eli Lilly and Company (NYSE:LLY)
Position size: $592 million
Activity: 43%
We usually don’t see any insider buying in large-cap companies. That wasn’t the case with LLY stock back in 2021 and 2022 when two of its directors purchased modest amounts of LLY stock at prices ranging from $182 to $304. LLY shares currently trade at $800, so those were pretty profitable insider purchases. Who knew?
At the time Eli Lilly and Company was in the early stages of profiting from the GLP-1 revolution. Today, investors like AQR Capital are piling into the stock because they believe that LLY’s new generation of GLP-1 drugs will generate more revenue and profits for LLY shareholders and the stock has a lot of upside ahead. Here is how Madison Sustainable Equity Fund explained why Eli Lilly and Company (NYSE:LLY) shares underperformed in Q3 (and why AQR decided to increase its LLY position by 43%):
“After first half strength, Eli Lilly has traded in a range this quarter, despite dramatically raising revenues and earnings following their second quarter report. There is a lot of noise in the Diabetes-Obesity space as many companies are looking for opportunities to get into the market, which is expected to exceed $100 billion in revenues in 2030. We have not seen any competitor data that would dethrone Novo Nordisk or Lilly but are watching carefully. Manufacturing capacity is a key barrier to entry and Lilly and Novo have locked up capacity for the next several years.”
Overall LLY ranks 7th on our list of the stocks that are dominating a billionaire quant’s investment strategy. While we acknowledge the potential of LLY as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than LLY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article was originally published at Insider Monkey.
