Takeda Pharmaceutical Company Limited (TAK): Hedge Fund Sentiment Unchanged

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Takeda Pharmaceutical Company Limited (NYSE:TAK).

Hedge fund interest in Takeda Pharmaceutical Company Limited (NYSE:TAK) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that TAK isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). At the end of this article we will also compare TAK to other stocks including Enterprise Products Partners L.P. (NYSE:EPD), Spotify Technology S.A. (NYSE:SPOT), and Public Storage (NYSE:PSA) to get a better sense of its popularity.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 79 percentage points since March 2017 (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.

Cathie Wood of ARK Investment Management

Now let’s take a peek at the key hedge fund action surrounding Takeda Pharmaceutical Company Limited (NYSE:TAK).

Do Hedge Funds Think TAK Is A Good Stock To Buy Now?

At second quarter’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in TAK over the last 24 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

The largest stake in Takeda Pharmaceutical Company Limited (NYSE:TAK) was held by ARK Investment Management, which reported holding $260.7 million worth of stock at the end of June. It was followed by Glenview Capital with a $153.4 million position. Other investors bullish on the company included Renaissance Technologies, Point72 Asset Management, and GMT Capital. In terms of the portfolio weights assigned to each position Blackcrane Capital allocated the biggest weight to Takeda Pharmaceutical Company Limited (NYSE:TAK), around 3.15% of its 13F portfolio. Glenview Capital is also relatively very bullish on the stock, designating 2.57 percent of its 13F equity portfolio to TAK.

Because Takeda Pharmaceutical Company Limited (NYSE:TAK) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few fund managers who were dropping their entire stakes heading into Q3. Interestingly, John Paulson’s Paulson & Co said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, comprising an estimated $86.3 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dumped about $2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks similar to Takeda Pharmaceutical Company Limited (NYSE:TAK). We will take a look at Enterprise Products Partners L.P. (NYSE:EPD), Spotify Technology S.A. (NYSE:SPOT), Public Storage (NYSE:PSA), Metlife Inc (NYSE:MET), Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), Biogen Inc. (NASDAQ:BIIB), and Carvana Co. (NYSE:CVNA). This group of stocks’ market valuations resemble TAK’s market valuation.

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As you can see these stocks had an average of 47.7 hedge funds with bullish positions and the average amount invested in these stocks was $2960 million. That figure was $551 million in TAK’s case. Biogen Inc. (NASDAQ:BIIB) is the most popular stock in this table. On the other hand Public Storage (NYSE:PSA) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Takeda Pharmaceutical Company Limited (NYSE:TAK) is even less popular than PSA. Our overall hedge fund sentiment score for TAK is 21.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds dodged a bullet by taking a bearish stance towards TAK. Our calculations showed that the top 5 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd but managed to beat the market again by 1.6 percentage points. Unfortunately TAK wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); TAK investors were disappointed as the stock returned -16.4% since the end of the second quarter (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.