With Brexit Looming, Hedge Funds Weigh In On British Stocks

The Brexit is looming and, no matter how cute a name we can come up with, the issue is as serious as can be. On June 23, Britain will hold a referendum, where people will decide if the country remains a part of the European Union or if it leaves the economic-political coalition. The issue has divided the British society, caused plenty of controversy, and could have a strong impact over the country’s economy – independently of the outcome.

According to a BBC article: “Big business – with a few exceptions – tends to be in favour of Britain staying in the EU because it makes it easier for them to move money, people and products around the world.” However, it’s regular people who will decide, and there is almost no way to anticipate the result of the referendum, especially taking into account that polls have shown a fairly even distribution among both sides of the question. In this backdrop, however, hedge funds continue to support British companies. In this article we will take a look into a few UK-based companies with considerable hedge fund support, in order to try to elucidate if they stand as attractive investment options for the long term.

Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that imitating the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012 (read more details here).

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AstraZeneca Loses Support as Stock Tumbles

Let’s start with AstraZeneca plc (ADR) (NYSE:AZN), which saw the number of hedge funds in our database long its stock decline by 10% to 18 over the last fully reported quarter – the first quarter of 2016. Moreover, these firms’ combined stakes accounted for only 0.6% of the company’s total shares outstanding as of March 31. In fact, very few 13F-filing institutional investors had large stakes in the company. Among the most valuable positions was that of billionaire Jim Simons’ Renaissance Technologies, which last disclosed ownership of 5.68 million shares, worth roughly $160 million by the end of March.

AstraZeneca plc (ADR) (NYSE:AZN) has had a tough year, and is ultimately down by more than 11.6%. However, it has gained 6.5% over the second quarter of 2016. Most recently, the stock was helped by a license deal inked with privately held Grunenthal GmbH, for the rights to AstraZeneca’s gout medicine Zurampic (lesinurad) in Europe and Latin America.

BP Gains Hedge Fund Backers

Contrary to its compatriot above, BP plc (ADR) (NYSE:BP) saw the number of funds in our database long its stock surge by 2 over the first quarter, to 34. However, again, the percentage of the float held by them was very small: 0.7%. Among notable investors was Richard S. Pzena’s Pzena Investment Management, which last declared holding 8.98 million shares, worth about $271 million by March 31, and Charles Clough’s Clough Capital Partners, which held 1.63 million shares. Unlike many oil and gas companies, BP plc (ADR) (NYSE:BP)’s stock is up by more than 3% so far this year. Most recently, the stock spiked after the company agreed to pay a $175 million settlement to assuage allegations that the management team lied about the magnitude and reach of the 2010 oil spill in the Gulf of Mexico.

GlaxoSmithKline Is Liked By Several Big Funds

GlaxoSmithKline plc (ADR) (NYSE:GSK) counted 28 hedge fund supporters – among those we track- at the end of the first quarter. Interestingly, the second-largest stake held by an institutional investor of record, only trailing FMR LLC, was the one reported by billionaire Ken Fisher’s Fisher Asset Management, which declared ownership of 11.65 million shares, worth almost $500 million as of March 31. Other notable investors included John Osterweis’ Osterweis Capital Management, which held 1.94 million shares, and James E. Flynn’s Deerfield Management, with 1.67 million shares. Shares of GlaxoSmithKline plc (ADR) (NYSE:GSK), which were quite volatile over the first quarter, are have inched up by over 1% year-to-date. Very recently, the company announced it was rolling out a modern HIV drug in Botswana, after the largest-ever tender secured by its HIV business in Africa. According to the agreement, GlaxoSmithKline will deliver 1.6 million packs of the HIV treatment Tivicay to Botswana through ViiV Healthcare, a company that is majority-owned by the British firm.

Rio Tinto Sees Hedge Fund Support Rise By 50%

Next up is Rio Tinto plc (ADR) (NYSE:RIO), which hedge funds that we track were particularly bullish on. The company saw the number of funds long the stock surge by 50% to 24 during the first quarter. Nonetheless, same as in all of the cases above, their combined ownership could not surpass 1% of the float, standing at about 0.5%. The largest new position was opened by Robert Bishop’s Impala Asset Management, which acquired 2.99 million shares of the mining company, holding $84.6 million in stock by March 31. Recently, Citigroup has upgraded its rating on the stock to ‘Neutral’ from ‘Sell’, citing an improved earnings outlook, helped by surging iron ore prices.

Shire, Most Popular UK Stock

Finally, there’s Shire PLC (ADR) (NASDAQ:SHPG) the most popular stock in this list, with 49 investors holding stakes at the end of March, up from 40 a quarter earlier. These stakes, valued at more than $2.5 billion on March 31, accounted for almost 1/3 of the company’s outstanding stock. Among the largest stockholders were John Paulson’s Paulson & Co, with 7.07 million shares worth over $1.2 billion, and Arrowstreet Capital, run by Peter Rathjens, Bruce Clarke and John Campbell, which disclosed ownership of 526,768 ADRs of Shire PLC as of March 31. As with many biotech stocks, Shire PLC (ADR) (NASDAQ:SHPG) had a rough first quarter, losing 16.15% of its value during the period. Nonetheless, the shares have performed better since April 1 and have inched up by more than 3%. Over a week ago, the company announced that it had completed its merger with Baxalta Inc (NYSE:BXLT), creating a company with a presence in over 100 countries, more than 22,000 employees, and projected sales of more than $20 billion by 2020.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.