Five Mega Caps That Hedge Funds Love: Allergan, Wells Fargo & More

While outperforming the market with mega caps is not easy, these stocks tend to offer a certain degree of stability and predictability, which are not negligible features in a volatile market as the one we’ve been seeing in recent months. In addition, many of these companies offer respectable dividend yields, which provide some extra insurance in times of increased volatility.

Even though investing in mega caps could be considered safer, these stocks’ value might increase slower than smaller companies’. This is why they don’t always offer the best risk-reward profile for smaller investors. This is why our small cap strategy tracks looks into the 15 most popular small-cap stocks among almost 800 funds that we keep track of, to help retail investors beat the market by around one percentage point per month over the long-run (see more details here).

Allergan plc Ordinary Shares (NYSE:AGN) is not only the most popular mega cap stock among the funds that we track, but also the overall favorite. After seeing a 5% increase in popularity over the fourth quarter of 2015, the number of firms long the stock reached 159. The aggregate value of their holdings also rose from $20.46 billion to $22.23 billion over the period; by the end of December, these firms held 18.1 percent of the pharmaceutical’s total shares outstanding. Among the funds we track, Andreas Halvorsen’s Viking Global disclosed the largest stake, comprising 5.97 million shares as of December 31.

While the stock market as a whole has not had a very good start to 2016, Allergan plc Ordinary Shares (NYSE:AGN), in particular has done worse. Year-to-date, the stock is down by about 7.9%, versus the S&P 500’s 2% decline. While framed in a wider tumble in pharmaceutical and biotech stocks, driven by the debate about drug pricing, a few company specific events also drove the plummet. The current stock price, well below Pfizer Inc. (NYSE:PFE)’s bid of $333.24 per share, has led many investors and analysts to question the merger. However, representatives of both companies have assured that the deal remains on track and that, instead, concerns should revolve around regulatory approval.

Next up is Wells Fargo & Co (NYSE:WFC), which saw 85 funds among those that we track hold shares at the end of the fourth quarter, same as in the previous one. These funds amassed roughly 11.7% of the company’s total outstanding stock, holding stakes with a total value of $32.55 billion at December 31, up from $30.86 billion in the previous quarter. Over the October-December period, the shares gained 5.86%.

Among the hedge funds that we track, Warren Buffett’s Berkshire Hathaway held the largest position in Wells Fargo & Co (NYSE:WFC). As of December 31, the fund held more than 479.7 million shares, valued at $26.07 billion; on February 16, the firm disclosed an increase in its position, which now comprises about 506.3 million shares. Looking to create more value for Mr. Buffett and other shareholders, Wells Fargo is now hunting for a new head of mergers and acquisitions that will help it grow its deal-making franchise, according to Reuters. The need for a new head of M&A comes after the current chief, John Laughlin, switched to a vice chairman role, Reuters said, citing people familiar with the matter.