Hedge Funds Are Selling These 10 Large-Caps, Part 1

Professional money managers are quick to judge when things start to turn sour for a particular company. Generally, it would do retail investors well to steer away from stocks in which the hedge fund interest has declined considerably during a quarterly period, as it likely portends bad things for the stock in the short-to-medium term. With this in mind we have compiled a list of the ten large-cap stocks which saw the greatest decline in support from the hedge funds in our database during the third quarter. We will look at the first five of those stocks in part one of this two-part article.

In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8,000 funds in operation at present, Insider Monkey looks at only the aristocrats of this group, around 730 funds. Contrary to popular belief, Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge, not because they are not good at picking stocks on the long side of their portfolios. Hedge funds did in fact manage to outperform the market on the long side of their portfolios. In fact, the 15 most popular small-cap stocks among hedge funds has returned 102% since the end of August 2012, beating the S&P 500 Index by 53 percentage points (see the details here).

Yahoo! Inc. (NASDAQ:YHOO)

 – Investors with Long Positions (as of September 30): 89

 – Aggregate Value of Investors’ Holdings (as of September 30): $5.47 Billion

So how fast exactly are hedgies washing their hands of Yahoo! Inc. (NASDAQ:YHOO)? While the total number of hedge funds holding the company in their portfolios as of September 30 remains high, at 89, that figure was a drop of 15 from the start of the third quarter. Likewise, the total value of these holdings took a hit of about $450 million. Mason Capital Management, which is led by Kenneth Mario Garschina, tops the list of investors who still like Yahoo, having hiked its stake in Yahoo! Inc. (NASDAQ:YHOO) by 154% during the third quarter to 16.35 million shares. The company recently decided against spinning off its Alibaba Group Holding Ltd (NYSE:BABA) stake, owing to the uncertain tax implications that lurk around the move, and will instead spin-off its core internet business. Yahoo!’s stock has slid by more than 30% so far this year.

eBay Inc (NASDAQ:EBAY)

 – Investors with Long Positions (as of September 30): 83

 – Aggregate Value of Investors’ Holdings (as of September 30): $3.68 Billion

As far as eBay Inc (NASDAQ:EBAY) is concerned, the total number of investors that we track with equity positions in the company slid by 16 during the July-to-September period, with the corresponding aggregate value of these investments taking a gargantuan $8.05 billion hit. Granted, the spinoff of Paypal Holdings Inc (NASDAQ:PYPL) in July and the subsequent 56% dip in the stock of the $33.88 billion e-commerce company is largely responsible for the sharp decline in the value of aggregate holdings, though not entirely, and the slide in the number of investors owning the company also reveals a clear lack of enthusiasm for its post-PayPal prospects. Daniel S. Och‘s OZ Management held about 21.75 million shares of eBay Inc (NASDAQ:EBAY) on September 30.

Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN)

 – Investors with Long Positions (as of September 30): 33

 – Aggregate Value of Investors’ Holdings (as of September 30): $2.41 Billion

The total number of smart money investors holding the healthcare company slid by 16 during the third quarter, while the value of their holdings dipped by about $420 million. Baker Bros. Advisors, which is led by Julian Baker and Felix Baker, owns about 6.54 million shares of the biopharmaceutical company. So far this year Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN)’s stock has appreciated by 1.21%.

Bank of New York Mellon Corp (NYSE:BK)

 – Investors with Long Positions (as of September 30): 52

 – Aggregate Value of Investors’ Holdings (as of September 30): $5.8 Billion

During the third quarter, Bank of New York Mellon Corp (NYSE:BK)’s stock price fell by about 1.3%, while the number of hedge funds within our database that held the stock shrank by 10 and the value of their aggregate holdings slid by $690 million. Nelson Peltz‘s Trian Partners is the largest stockholder of Bank of New York Mellon Corp (NYSE:BK) within our database, holding nearly 30.23 million shares. Moderate loan growth and a challenging interest rate environment has prevented the banking sector from posting a strong performance this year. However, if the Fed does indeed increase rates at its upcoming meeting, as many analysts expect it to do, things should begin to improve for the sector.

General Motors Company (NYSE:GM)

 – Investors with Long Positions (as of September 30): 88

 – Aggregate Value of Investors’ Holdings (as of September 30): $5.11 Billion

Over the past 12 months, General Motors Company (NYSE:GM)’s stock has posted gains of over 5%, while the Auto & Truck Manufacturers industry has seen average losses of 1.29% during the same period. However, that hasn’t been enough to keep the hedgies interested, as the total number of those in our database that were long GM slid by 16 and the aggregate value of their holdings fell by $671 million during the third quarter. Legendary investor Warren Buffett‘s Berkshire Hathaway, however, hiked its stake in General Motors Company (NYSE:GM) by 22% to 50 million shares during the third quarter, a move which has paid off in the fourth quarter as shares have jumped by 16%.

Disclosure: None