Billionaire David Shaw’s Fund Boosts Exposure to Yahoo, Allergan & Others

D. E. Shaw & Co. was founded in 1988 by David E. Shaw, who was a pioneer in the field of computational finance. The firm makes extensive use of systematic and computer driven methods in its trading activity. Shaw no longer plays a role in day-to-day decision making, but retains a role in high-level strategic decisions. D. E. Shaw’s funds are currently run by an Executive Committee, which consists of four members that have been with the firm for two decades. At the end of the first quarter, the firm had more than $85 billion in assets under management, of which $55.7 billion were assigned to its equity portfolio. The fund’s latest 13F filing shows a large exposure to technology and consumer discretionary sectors, which amount to 20% and 19% of the portfolio respectively. In this article we’ll take a look at five noteworthy changes made by D. E. Shaw’s managing committee during the quarter.

We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see more details here).

Yahoo! Optimism

D. E. Shaw’s investment in Yahoo! Inc. (NASDAQ:YHOO) dates back to the fourth quarter of 2006, making it one of the oldest position among the current top 10. During the first quarter the fund’s management team boosted their investment by 134% to a little over 19 million shares worth more than $700 million. Activist investor Jeffrey Smith is still betting on Yahoo! Inc. (NASDAQ:YHOO) with his fund, Starboard Value, having increased its stake by 74% to 12.3 million shares valued at $452 million at the end of March. One of Yahoo!’s directors, Smith has been advocating for the company to spin off its interest in e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA) for a long time. Since Yahoo!’s management hesitated to do so due to high tax liabilities, Smith launched a proxy fight to remove the entire board of directors and the CEO, Marissa Mayer. The two parties reached an agreement and Starboard was awarded four director seats at the end of April. It is now expected that Yahoo! Inc. (NASDAQ:YHOO) will continue to search for a buyer of its core assets.

Is Allergan Heading Up?

Pfizer Inc. (NYSE:PFE)’s failed takeover of Allergan plc Ordinary Shares (NYSE:AGN) has not deterred D. E. Shaw’s interest in the pharmaceutical giant. According to its latest 13F filing, the fund increased its exposure to Allergan by 153% to 2.29 million shares worth $613 million at the end of the first quarter. Tiger Cub Andreas Halvorsen chose to distance himself from Allergan plc Ordinary Shares (NYSE:AGN) and dumped approximately 20% of Viking Global’s stake, taking it to 4.88 million shares reportedly worth $1.31 billion. Pfizer Inc. (NYSE:PFE) announced it would not complete the $160 billion takeover of Allergan in the beginning of April, as lawmakers closed some loops in the US tax laws that allowed US companies to change their domicile overseas in order to reduce their tax burdens. The stock fell 15% following the announcement and continued to fall until it found support at the $200 level. Shares are currently trading at $226.5 apiece, down 26% for the year.

Head over to the next page to find out about three other stocks D. E. Shaw’s management is bullish on.