Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN).
Hedge fund interest in Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare ALXN to other stocks including Entergy Corporation (NYSE:ETR), Kellogg Company (NYSE:K), and Rockwell Automation Inc. (NYSE:ROK) to get a better sense of its popularity.
Video: Click the image to 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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
Felix Baker of Baker Bros.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind let’s review the new hedge fund action regarding Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN).
How have hedgies been trading Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN)?
At Q4’s end, a total of 48 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ALXN over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) was held by Baker Bros. Advisors, which reported holding $893.1 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $403.5 million position. Other investors bullish on the company included AQR Capital Management, Iridian Asset Management, and OrbiMed Advisors. In terms of the portfolio weights assigned to each position Partner Fund Management allocated the biggest weight to Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), around 5.55% of its 13F portfolio. Palo Alto Investors is also relatively very bullish on the stock, dishing out 5.23 percent of its 13F equity portfolio to ALXN.
Judging by the fact that Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of hedge funds who were dropping their entire stakes by the end of the third quarter. Intriguingly, Jeremy Green’s Redmile Group dumped the largest stake of all the hedgies followed by Insider Monkey, worth close to $113.8 million in stock. Ray Dalio’s fund, Bridgewater Associates, also dropped its stock, about $46.6 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) but similarly valued. These stocks are Entergy Corporation (NYSE:ETR), Kellogg Company (NYSE:K), Rockwell Automation Inc. (NYSE:ROK), and Splunk Inc (NASDAQ:SPLK). This group of stocks’ market caps resemble ALXN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ETR | 31 | 1402438 | 2 |
| K | 30 | 569797 | 1 |
| ROK | 39 | 614212 | 10 |
| SPLK | 38 | 538860 | 2 |
| Average | 34.5 | 781327 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.5 hedge funds with bullish positions and the average amount invested in these stocks was $781 million. That figure was $2928 million in ALXN’s case. Rockwell Automation Inc. (NYSE:ROK) is the most popular stock in this table. On the other hand Kellogg Company (NYSE:K) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th and still beat the market by 1.9 percentage points. Unfortunately ALXN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ALXN were disappointed as the stock returned -20.1% during the first two months of 2020 (through March 9th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
