As we are entering into the second quarter of 2015, it’s time to take a brief look back and see how the market performed during the first three months of the year, and most importantly if investors have been right in their bets. With this in mind, we have determined five stocks that have market capitalizations of over $100 billion that have performed exceptionally well, generating returns north of 10% during the first quarter. The companies that we are going to talk about are: Novo Nordisk A/S (ADR) (NYSE:NVO), Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL), Pfizer Inc. (NYSE:PFE), and China Life Insurance Company Ltd. (ADR) (NYSE:LFC). You might be wondering why we are doing this and the reason is pretty simple. We are analyzing tons of data after the end of each round of 13F filings and try to identify some of the best picks that could help other investors to build a portfolio that would be able to beat the market.
Even though these stocks had an equally-weighted average return of more than 17.28% for the first quarter while the S&P 500 ETF (SPY) inched up by only 0.90% during the same period, these companies are more of an exception to the general rule. Hedge funds and other big money managers prefer to hold the largest amounts of capital invested in large and mega-cap stocks because these companies allow a much larger capital allocation, which is important taking into account that the global hedge fund industry has swollen to nearly $3.0 trillion. That’s why if we take a look at the most popular stocks among hedge funds (we track more than 700 in our database), we won’t find any mid- or small-cap stocks there. However, our backtests of hedge funds’ equity portfolios between 1999 and 2012 revealed that the 50 most popular stocks among hedge funds underperformed the market by 7 basis points per month, while in the last two years, equity hedge funds had average returns of 11.1% and 1.4%, which shows that an investor was better off by allocating their money into an index fund such as the S&P 500 ETF (SPY), which returned 32.3% and 13.5% during the same period. However, we consider that we can combine the pricing inefficiencies among small-cap picks with hedge fund managers’ expertise and obtain significant results. This was confirmed through backtesting and in forward tests since 2012, as this strategy, which involves imitating the most popular small-cap picks among hedge funds managed to provide gains of 132% (read more details here), beating the broader market by some 79 percentage points.
So, let’s get back to our “exceptions” from the rule and see these five mega-cap stocks and what hedge funds “think” about them. On the first spot is Novo Nordisk A/S (ADR) (NYSE:NVO), which jumped by 28.13% during the first quarter. Novo Nordisk is a $143 billion biotechnology company, which is enough to explain why it is on the top of this list. The Biotech industry has been very hot lately and the majority of top gainers among companies with market capitalizations above $1.0 billion, are biotech stocks. Novo Nordisk is the third largest company from the industry, being outrun by Gilead Sciences, Inc. (NASDAQ:GILD) and Roche Holdings in terms of size, but its stock had the highest gains among all three. However, despite a significant appreciation of the stock, Novo Nordisk A/S (ADR) (NYSE:NVO) has recently announced a buyback program of up to 15 million Danish Krones ($2.16 billion) to be conducted within the next ten months (until January 30, 2016).
Hedge funds are not particularly excited about Novo Nordisk A/S (ADR) (NYSE:NVO) as the latest round of 13F filings showed. Overall, 18 funds disclosed long positions in the company with an aggregate value of $1.59 billion, but none of the funds that we track hold more than 1.60% of their equity portfolios invested in the company, probably because of its large size and expensive shares. However, billionaire Jim Simons’ Renaissance Technologies owns 15.61 million shares of Novo Nordisk A/S (ADR) (NYSE:NVO) as of the end of 2014, the $660.81 million stake being the second-largest in its equity portfolio.
