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.

As one might figure, The Coca-Cola Co (NYSE:KO) is also very popular among institutional investors – and not just consumers. However, over the fourth quarter, the number of funds in our database long the stock fell by 5.5% to 51. However, the value of their holdings rose over the period, from $19.33 billion to $20.28 billion, as the stock gained more than 7% in value; these positions accounted for 10.9% of the company’s outstanding stock as of December 31. Once again, Berkshire Hathaway held the largest stake, comprising 400 million shares, worth about $17.18 billion.

Despite its maturity, The Coca-Cola Co (NYSE:KO) has managed to beat the market so far in 2016, having posted gains of more than 2.5%, versus the S&P’s 2% decline. Among the events driving the growth of the stock price, we could point out the 6.1% increase in the company’s dividend to $0.35 per share, which implies a yield of almost 3.2%.

International Business Machines Corp. (NYSE:IBM) also saw the number of funds in our database long the stock tumble over the fourth quarter, to 56 from 63, amid a 5.07% decline registered by the stock. In this way, the aggregate value of holdings of these funds decreased to $12.67 billion from $13.49 billion. Warren Buffett’s Berkshire Hathaway held the largest stake, comprising 81.03 million shares. David Harding’s Winton Capital Management trailed it by a wide margin with 1.41 million shares disclosed as of December 31.

A few days ago, International Business Machines Corp. (NYSE:IBM) made an acquisition that many called a game-changer. The company purchased Resilient Systems, which completes its IBM QRadar segment, and brings famed security expert Bruce Schneier to the company. Shares of IBM are up by more than 9.2% over the past month.

Finally, there’s Citigroup Inc (NYSE:C), which saw a 12.3% reduction in the number of funds bullish on the stock. By December 31, 106 funds in our database held long positions in the stock. Representing 6.5% of the company’s shares outstanding, these stakes were valued at $9.97 billion, while the largest position was owned by Boykin Curry’s Eagle Capital Management, which comprised 25.26 million shares, worth more than $1.3 billion.

With its stock down by more than 17% year-to-date, Citigroup Inc (NYSE:C) is shrinking. A lack of confidence in the Chinese market has led it to sell its 20% stake in Guangfa Bank for $3 billion, and trouble in its Latin American operations has forced it to wrap up its consumer banking operations in Argentina and Brazil – although its institutional businesses will remain unchanged.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.