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Is AstraZeneca plc (AZN) Going to Burn These Hedge Funds?

Nina Todic

Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees in 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the third quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards AstraZeneca plc (NYSE:AZN).

AstraZeneca plc (NYSE:AZN) was in 25 hedge funds' portfolios at the end of September. AZN shareholders have witnessed an increase in hedge fund sentiment of late. There were 24 hedge funds in our database with AZN holdings at the end of the previous quarter. Our calculations also showed that AZN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

[caption id="attachment_746893" align="aligncenter" width="473"] Paul Marshall of Marshall Wace[/caption]

Paul Marshall Marshall Wace

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a gander at the fresh hedge fund action regarding AstraZeneca plc (NYSE:AZN).

How have hedgies been trading AstraZeneca plc (NYSE:AZN)?

At Q3's end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the previous quarter. On the other hand, there were a total of 26 hedge funds with a bullish position in AZN a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

No of Hedge Funds with AZN Positions

The largest stake in AstraZeneca plc (NYSE:AZN) was held by Fisher Asset Management, which reported holding $724.8 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $382.8 million position. Other investors bullish on the company included GQG Partners, Farallon Capital, and Marshall Wace. In terms of the portfolio weights assigned to each position GQG Partners allocated the biggest weight to AstraZeneca plc (NYSE:AZN), around 2.69% of its portfolio. Sivik Global Healthcare is also relatively very bullish on the stock, setting aside 1.8 percent of its 13F equity portfolio to AZN.

Consequently, some big names have been driving this bullishness. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the most valuable position in AstraZeneca plc (NYSE:AZN). Adage Capital Management had $22.3 million invested in the company at the end of the quarter. Simon Sadler's Segantii Capital also initiated a $3.9 million position during the quarter. The other funds with brand new AZN positions are Nick Thakore's Diametric Capital, Donald Sussman's Paloma Partners, and Karim Abbadi and Edward McBride's Centiva Capital.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as AstraZeneca plc (NYSE:AZN) but similarly valued. These stocks are Thermo Fisher Scientific Inc. (NYSE:TMO), Royal Bank of Canada (NYSE:RY), Amgen, Inc. (NASDAQ:AMGN), and Sanofi (NASDAQ:SNY). All of these stocks' market caps resemble AZN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TMO,65,3444543,-7 RY,17,491191,2 AMGN,48,2569750,6 SNY,27,985072,2 Average,39.25,1872639,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.25 hedge funds with bullish positions and the average amount invested in these stocks was $1873 million. That figure was $1779 million in AZN's case. Thermo Fisher Scientific Inc. (NYSE:TMO) is the most popular stock in this table. On the other hand Royal Bank of Canada (NYSE:RY) is the least popular one with only 17 bullish hedge fund positions. AstraZeneca plc (NYSE:AZN) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on AZN, though not to the same extent, as the stock returned 8.8% during the first two months of the fourth quarter and outperformed the market.

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

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