Top Five BioTech Stocks of a Quant Hedge Fund

Massachusetts-based Arrowstreet Capital recently has issued its latest 13F filing with the Securities and Exchange Commission for the reporting quarter ended September 30. The fund’s equity portfolio was valued at $38.77 billion at the end of the third quarter. Arrowstreet Capital is a quantitative hedge fund that was founded by Peter Rathjens, Bruce Clarke and John Campbell in 1999. It has $54 billion assets under management as of September 30. Arrowstreet Capital was very active during the third quarter. The fund initiated positions in over 450 companies, and it upped its stakes in more than 800 companies. We have already discussed the fund’s largest holdings. In this article, we will take a look at Arrowstreet Capital’s top biotech stock picks.

Why do we pay attention to hedge funds’ moves? Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 53 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. a 48.7% gain for the S&P 500 Index (see more details here). That’s why we believe investors should pay attention to what hedge funds are buying.

#5 AstraZeneca plc (ADR) (NYSE:AZN)

Shares held (as of September 30): 2,799,575

Total Value (as of September 30): $104.54 million

Percent of Portfolio (as of September 30): 0.27%

Arrowstreet Capital was bullish on AstraZeneca plc (ADR)(NYSE:AZN) during the quarter, boosting its position by more than 180%. Shares of the company have declined by over 9% year-to-date. Last week, AstraZeneca plc (ADR) (NYSE:AZN) announced that it agreed to acquire ZS Pharma (NASDAQ:ZSPH) for about $2.7 billion. ZS Pharma is a biopharmaceutical company based in San Mateo, California. The deal is expected to close by the end of 2015. Another largest shareholder, among those we track, of AstraZeneca plc (ADR) (NYSE:AZN) is Jim Simons’ Renaissance Technologies, holding 3.93 million shares of the company as of the end of June.

#4 Pfizer Inc. (NYSE:PFE)

Shares held (as of September 30): 3,494,200

Total Value (as of September 30): $112.52 million

Percent of Portfolio (as of September 30): 0.29%

The fourth-top biotech stock of Arrowstreet Capital is represented by Pfizer Inc. (NYSE:PFE), in which the investor upped its stake by more than 160% over the quarter. According to news reports, Pfizer Inc. (NYSE:PFE) and Allergan PLC (NYSE:AGN) are currently in friendly talks for a merger that would create the world’s largest drug-maker with a market cap of more than $300 billion. Pfizer Inc. (NYSE:PFE)’s shares are trading up 8.22% year-to-date. Another investor that likes Pfizer is Ken Fisher’s Fisher Asset Management, which reported holding 31.93 million shares in its latest 13F for the third quarte

We are going to discuss Arrowstreet Capital’s top three stocks on the next page.