Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Takeda Pharmaceutical Company Limited (NYSE:TAK) has experienced a decrease in activity from the world's largest hedge funds of late. Our calculations also showed that TAK isn't among the 30 most popular stocks among hedge funds. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the new hedge fund action encompassing Takeda Pharmaceutical Company Limited (NYSE:TAK).
What does smart money think about Takeda Pharmaceutical Company Limited (NYSE:TAK)?
At Q2's end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in TAK a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Glenview Capital held the most valuable stake in Takeda Pharmaceutical Company Limited (NYSE:TAK), which was worth $467.8 million at the end of the second quarter. On the second spot was Paulson & Co which amassed $234.4 million worth of shares. Moreover, Baupost Group, LMR Partners, and HBK Investments were also bullish on Takeda Pharmaceutical Company Limited (NYSE:TAK), allocating a large percentage of their portfolios to this stock.
Seeing as Takeda Pharmaceutical Company Limited (NYSE:TAK) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there lies a certain "tier" of hedge funds who sold off their full holdings in the second quarter. It's worth mentioning that Scott Ferguson's Sachem Head Capital cut the biggest position of the "upper crust" of funds followed by Insider Monkey, totaling an estimated $121.5 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also dropped its stock, about $86 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 8 funds in the second quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Takeda Pharmaceutical Company Limited (NYSE:TAK) but similarly valued. These stocks are Northrop Grumman Corporation (NYSE:NOC), Zoetis Inc (NYSE:ZTS), Illumina, Inc. (NASDAQ:ILMN), and Schlumberger Limited. (NYSE:SLB). This group of stocks' market caps resemble TAK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NOC,37,600316,2 ZTS,40,2060753,3 ILMN,43,1354306,1 SLB,41,1851257,-8 Average,40.25,1466658,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.25 hedge funds with bullish positions and the average amount invested in these stocks was $1467 million. That figure was $1290 million in TAK's case. Illumina, Inc. (NASDAQ:ILMN) is the most popular stock in this table. On the other hand Northrop Grumman Corporation (NYSE:NOC) is the least popular one with only 37 bullish hedge fund positions. Compared to these stocks Takeda Pharmaceutical Company Limited (NYSE:TAK) is even less popular than NOC. Hedge funds dodged a bullet by taking a bearish stance towards TAK. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TAK wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TAK investors were disappointed as the stock returned -2.8% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.