Did Hedge Funds Make The Right Call On AstraZeneca plc (AZN)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded AstraZeneca plc (NYSE:AZN) and determine whether the smart money was really smart about this stock.

AstraZeneca plc (NYSE:AZN) has seen a decrease in activity from the world’s largest hedge funds lately. AZN was in 26 hedge funds’ portfolios at the end of March. There were 32 hedge funds in our database with AZN positions at the end of the previous quarter. Our calculations also showed that AZN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Rajiv Jain of GQG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to view the key hedge fund action encompassing AstraZeneca plc (NYSE:AZN).

What does smart money think about AstraZeneca plc (NYSE:AZN)?

Heading into the second quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AZN over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

More specifically, Fisher Asset Management was the largest shareholder of AstraZeneca plc (NYSE:AZN), with a stake worth $739.4 million reported as of the end of September. Trailing Fisher Asset Management was GQG Partners, which amassed a stake valued at $355.3 million. Arrowstreet Capital, Renaissance Technologies, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Healthcare Value Capital allocated the biggest weight to AstraZeneca plc (NYSE:AZN), around 5.64% of its 13F portfolio. Galibier Capital Management is also relatively very bullish on the stock, designating 5.37 percent of its 13F equity portfolio to AZN.

Since AstraZeneca plc (NYSE:AZN) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of fund managers that slashed their full holdings last quarter. Intriguingly, Israel Englander’s Millennium Management dropped the largest position of the “upper crust” of funds watched by Insider Monkey, totaling about $18.3 million in stock. Yi Xin’s fund, Ariose Capital, also said goodbye to its stock, about $8.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 6 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as AstraZeneca plc (NYSE:AZN) but similarly valued. These stocks are HSBC Holdings plc (NYSE:HSBC), Philip Morris International Inc. (NYSE:PM), Thermo Fisher Scientific Inc. (NYSE:TMO), and AbbVie Inc (NYSE:ABBV). This group of stocks’ market caps are closest to AZN’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 55.75 hedge funds with bullish positions and the average amount invested in these stocks was $2807 million. That figure was $1772 million in AZN’s case. AbbVie Inc (NYSE:ABBV) is the most popular stock in this table. On the other hand HSBC Holdings plc (NYSE:HSBC) is the least popular one with only 14 bullish hedge fund positions. AstraZeneca plc (NYSE:AZN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately AZN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AZN investors were disappointed as the stock returned 18.4% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.