The market has been volatile as the Federal Reserve continues its rate hikes to normalize the interest rates. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by about 4 percentage points through November 16th. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, and the funds’ movements is one of the reasons why the major indexes have retraced. In this article, we analyze what the smart money thinks of AstraZeneca plc (NYSE:AZN) and find out how it is affected by hedge funds’ moves.
Is AstraZeneca plc (NYSE:AZN) worth your attention right now? Investors who are in the know are buying. The number of long hedge fund bets went up by 3 in recent months. Our calculations also showed that azn isn’t among the 30 most popular stocks among hedge funds. AZN was in 26 hedge funds’ portfolios at the end of September. There were 23 hedge funds in our database with AZN positions at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to take a gander at the new hedge fund action encompassing AstraZeneca plc (NYSE:AZN).
What have hedge funds been doing with AstraZeneca plc (NYSE:AZN)?
Heading into the fourth quarter of 2018, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the previous quarter. By comparison, 27 hedge funds held shares or bullish call options in AZN heading into this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in AstraZeneca plc (NYSE:AZN) was held by Fisher Asset Management, which reported holding $534.9 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $224.1 million position. Other investors bullish on the company included Farallon Capital, Citadel Investment Group, and York Capital Management.
As one would reasonably expect, key money managers have jumped into AstraZeneca plc (NYSE:AZN) headfirst. Magnetar Capital, managed by Alec Litowitz and Ross Laser, assembled the most valuable position in AstraZeneca plc (NYSE:AZN). Magnetar Capital had $6.9 million invested in the company at the end of the quarter. Nick Thakore’s Diametric Capital also initiated a $2 million position during the quarter. The following funds were also among the new AZN investors: Anand Parekh’s Alyeska Investment Group, Matthew Tewksbury’s Stevens Capital Management, and Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management.
Let’s check out hedge fund activity in other stocks similar to AstraZeneca plc (NYSE:AZN). We will take a look at Gilead Sciences, Inc. (NASDAQ:GILD), GlaxoSmithKline plc (NYSE:GSK), Lockheed Martin Corporation (NYSE:LMT), and Thermo Fisher Scientific Inc. (NYSE:TMO). This group of stocks’ market valuations resemble AZN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GILD | 56 | 3046981 | -1 |
| GSK | 24 | 1444760 | 3 |
| LMT | 36 | 2016945 | 3 |
| TMO | 56 | 4602612 | -3 |
| Average | 43 | 2777825 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 43 hedge funds with bullish positions and the average amount invested in these stocks was $2.78 billion. That figure was $1.24 billion in AZN’s case. Gilead Sciences, Inc. (NASDAQ:GILD) is the most popular stock in this table. On the other hand GlaxoSmithKline plc (NYSE:GSK) is the least popular one with only 24 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. In this regard GILD might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
