Billionaires Are Turning Away from These Five Stocks

According to Institutional Investor, nearly half of the entire hedge fund industry lost money in 2015 and some funds managed by billionaires, such as Daniel Loeb’s Third Point LLC were among losers. By no means are billionaire asset managers faultless in their investment strategy and philosophy, but they are much better at investing than most hedge fund managers out there. For that reason, investors should keep track of what money managers with ten-figure fortunes are buying and selling to get tips on how to adjust their own portfolio. However, one should keep in mind that six of the top eight highest-earning hedge fund managers in 2015 are employing so-called quant investment strategies, which most probably explains the stability of their strong performance. Some billionaires, including David Einhorn of Greenlight Capital, voiced their discontent with the masses closely following and mimicking their moves, but as long as these successful money managers do not want anyone following their footsteps it does make sense to do what Mr. Einhorn opposes. Kidding aside, Insider Monkey decided to lay out a list of five stocks billionaire asset managers were running away from during the first quarter of 2016.

At Insider Monkey, we track around 730 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

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#5 Dow Chemical Co (NYSE:DOW)

– Billionaires with long positions as of March 31: 9

– Aggregate value of billionaires’ holdings as of March 31: $2.51 Billion

There were nine billionaire-led funds followed by Insider Monkey with long positions in Dow Chemical Co (NYSE:DOW) at the end of the March quarter, down from 13 registered at the end of the previous quarter. Correspondingly, the aggregate value of their holdings fell by 25% quarter-over-quarter to $2.51 billion. Chemical industry bigwigs Dow Chemical and E. I. Du Pont De Nemours and Co (NYSE:DD), which announced an all-stock merger last year, plan to hold separate shareholder meetings in late July to vote on the proposed merger. The combined chemical behemoth, to be called DowDuPont, plans to achieve $3 billion in cost synergies before splitting into three separate companies focused on agriculture, material science and specialty products. The merger is anticipated to close in the second half of 2016. Dow Chemical shares are up 1% so far in 2016. Dan Loeb’s Third Point LLC held 25.00 million shares of Dow Chemical Co (NYSE:DOW) at the end of March.

#4 Citigroup Inc. (NYSE:C)

– Billionaires with long positions as of March 31: 11

– Aggregate value of billionaires’ holdings as of March 31: $1.44 Billion

The number of billionaire asset managers with equity investments in Citigroup Inc. (NYSE:C) dropped to 11 from 15 during the January-to-March period, while the dollar value of those investments fell by 32% quarter-on-quarter to $1.44 billion. The decline was partially driven by a 19% fall in the value of Citigroup shares. Like other industry peers, Citigroup’s stock and financial performance have been under pressure from a combination of low interest rates and struggling energy sector. The fourth-largest U.S. bank in terms of assets was one of the eight financial institutions required to submit a “living will”, which represents a resolution plan showing how banks would go bankrupt without destabilizing the entire financial system, and Citigroup was the only bank that had its “living will” plan authorized by regulators. Earlier this year, Citigroup announced plans to divest retail banking operations in Brazil, Argentina and Colombia, but discussions between the U.S. lender and possible bidders for the Brazilian retail banking unit could last up to three months according to fresh news. Boykin Curry’s Eagle Capital Management owned around 26.14 million shares of Citigroup Inc. (NYSE:C) in its portfolio on March 31.

#3 McDonald’s Corporation (NYSE:MCD)

– Billionaires with long positions as of March 31: 11

– Aggregate value of billionaires’ holdings as of March 31: $1.10 Billion

McDonald’s Corporation (NYSE:MCD) lost appeal among the hedge fund managers with ten-figure fortunes during the first three months of 2016, as the number of billionaires from our system with stakes in the well-known company declined to 11 from 14 quarter-over-quarter. Similarly, the overall value of those stakes decreased by 47% sequentially to $1.10 billion even though McDonald’s shares gained 7% in the first quarter. Just recently, the world’s leading global food service retailer announced plans to move its corporate headquarters from an Illinois suburb to downtown Chicago by the spring of 2018, as part of the company’s turnaround plan to revive its business performance. McDonald’s CEO, Steven Easterbrook, follows his mission to turn the fast-food chain into a “modern, progressive burger company”, and the recently-revealed plans will enable the company to recruit young talent to continue its turnaround efforts. McDonald’s shares are up 3% year-to-date. Daniel S. Och’s OZ Management reported owning 2.18 million shares of McDonald’s Corporation (NYSE:MCD) in its latest 13F.

#2 Valeant Pharmaceuticals Intl Inc. (NYSE:VRX)

– Billionaires with long positions as of March 31: 8

– Aggregate value of billionaires’ holdings as of March 31: $1.52 Billion

Unsurprisingly, the number of billionaires’ funds followed by our team invested in Valeant Pharmaceuticals Intl Inc. (NYSE:VRX) fell to eight from 12 during the March quarter, while the aggregate value of those billionaires’ equity investments in the Canadian drug maker plunged by 76% quarter-on-quarter to $1.52 billion. The plunge was mostly attributable to the 74% decline in the value of Valeant shares. Although the embattled drug market does not seem to be making headlines on a daily basis, Valeant continues to be among the most discussed and followed stocks. It may be hard to believe that Valeant shares were trading above $263 in August 2015, as the stock currently trades in mid-$20’s. The company has a really bumpy road ahead despite having made significant leadership and boardroom changes, with some possible moves likely to involve divesting some businesses to reduce the heavy debt load of more than $30 billion. Bill Ackman’s Pershing Square Capital Management, the hedge fund hurt the most by the drug maker’s freefall, owned 21.59 million shares of Valeant Pharmaceuticals Intl Inc. (NYSE:VRX) at the end of the first quarter.

#1 United Continental Holdings Inc. (NYSE:UAL)

– Billionaires with long positions as of March 31: 6

– Aggregate value of billionaires’ holdings as of March 31: $590.55 Million

There were six billionaires with long positions in United Continental Holdings Inc. (NYSE:UAL) at the end of the first quarter, down from 10 registered at the end of the final quarter of 2015. Meanwhile, the dollar value of all those positions dropped by 20% quarter-over-quarter to $590.55 million, despite the stock having gained 4% during the quarter. The Chicago-based carrier’s performance has been impacted lately by worries over terrorism after the horrible attacks in Paris and Brussels in the not-so-distant future. The recent shooting at a club in Orlando and a bombing at Shanghai’s main international airport have put even more pressure on the overall airline sector, United Continental was no exception. Investors and airlines are worried that overall passenger demand is not growing at the rate industry capacity grows, as United Continental’s fresh data shows that consolidated traffic is indeed slowing. The shares of the airline are down 26% so far in 2016. Brad Gerstner’s Altimeter Capital Management owns 11.51 million shares of United Continental Holdings Inc. (NYSE:UAL) as of March 31.

Disclosure: None