Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) was in 37 hedge funds’ portfolios at the end of September. ALXN investors should be aware of a decrease in activity from the world’s largest hedge funds lately. There were 43 hedge funds in our database with ALXN holdings at the end of the previous quarter. Our calculations also showed that ALXN isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to take a look at the fresh hedge fund action regarding Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN).
What does the smart money think about Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN)?
At the end of the third quarter, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. By comparison, 41 hedge funds held shares or bullish call options in ALXN heading into this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Baker Bros. Advisors was the largest shareholder of Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), with a stake worth $1.19 billion reported as of the end of September. Trailing Baker Bros. Advisors was OrbiMed Advisors, which amassed a stake valued at $400.5 million. Iridian Asset Management, Citadel Investment Group, and Palo Alto Investors were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) has experienced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of money managers that elected to cut their entire stakes last quarter. Intriguingly, Zach Schreiber’s Point State Capital dropped the biggest stake of the 700 funds tracked by Insider Monkey, valued at about $87.9 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund dumped about $87.1 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 6 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) but similarly valued. These stocks are SunTrust Banks, Inc. (NYSE:STI), TE Connectivity Ltd. (NYSE:TEL), Roper Technologies, Inc. (NYSE:ROP), and Concho Resources Inc. (NYSE:CXO). All of these stocks’ market caps resemble ALXN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| STI | 22 | 319050 | -3 |
| TEL | 30 | 1069097 | 1 |
| ROP | 32 | 861431 | 6 |
| CXO | 32 | 547181 | 2 |
| Average | 29 | 699190 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $699 million. That figure was $2.81 billion in ALXN’s case. Roper Industries, Inc. (NYSE:ROP) is the most popular stock in this table. On the other hand SunTrust Banks, Inc. (NYSE:STI) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
