Were Hedge Funds Right About Piling Into Alexion Pharmaceuticals, Inc. (ALXN)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) and determine whether hedge funds skillfully traded this stock.

Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) was in 56 hedge funds’ portfolios at the end of March. ALXN investors should pay attention to an increase in support from the world’s most elite money managers in recent months. There were 48 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 (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 58 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Frank Brosens of Taconic Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a glance at the key hedge fund action surrounding Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN).

Hedge fund activity in Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN)

At the end of the first quarter, a total of 56 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in ALXN over the last 18 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

The largest stake in Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) was held by Baker Bros. Advisors, which reported holding $786.6 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $337.9 million position. Other investors bullish on the company included Citadel Investment Group, AQR Capital Management, and OrbiMed Advisors. In terms of the portfolio weights assigned to each position Camber Capital Management allocated the biggest weight to Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), around 8.85% of its 13F portfolio. Prosight Capital is also relatively very bullish on the stock, earmarking 5.88 percent of its 13F equity portfolio to ALXN.

Now, key hedge funds have been driving this bullishness. Suvretta Capital Management, managed by Aaron Cowen, assembled the biggest position in Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN). Suvretta Capital Management had $49.5 million invested in the company at the end of the quarter. David Rosen’s Rubric Capital Management also initiated a $22.9 million position during the quarter. The following funds were also among the new ALXN investors: Doron Breen and Mori Arkin’s Sphera Global Healthcare Fund, Henrik Rhenman’s Rhenman & Partners Asset Management, and Arthur B Cohen and Joseph Healey’s Healthcor Management LP.

Let’s check out hedge fund activity in other stocks similar to Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN). These stocks are ANSYS, Inc. (NASDAQ:ANSS), KKR & Co Inc. (NYSE:KKR), Edison International (NYSE:EIX), and Seattle Genetics, Inc. (NASDAQ:SGEN). This group of stocks’ market values match ALXN’s market value.

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As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $2739 million. That figure was $3058 million in ALXN’s case. KKR & Co Inc. (NYSE:KKR) is the most popular stock in this table. On the other hand Seattle Genetics, Inc. (NASDAQ:SGEN) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on ALXN, though not to the same extent, as the stock returned 25% in Q2 and outperformed the market as well.

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