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.

#3 Celgene Corporation (NASDAQ:CELG)

Shares held (as of September 30): 1,362,516

Total Value (as of September 30): $157.69 million

Percent of Portfolio (as of September 30): 0.89%

Arrowstreet Capital’s stake in Celgene Corporation (NASDAQ:CELG) remained unchanged over the quarter. With a market cap of more than $88 billion, Celgene Corporation (NASDAQ:CELG) is a biotechnology company engaged in making drug therapies for cancer and inflammatory disorders. The company’s shares dropped 14.01% during the last three months. On a GAAP basis, Celgene posted a loss of $34 million, or $0.04 per share for the third quarter, compared to a net income of $508 million, or $0.61 per share, in the year-ago quarter. The company’s revenue, however, jumped to $2.3 billion, versus $1.98 billion in 2014. Samuel Isaly’s Orbimed Advisors held 3.83 million shares of Celgene Corporation (NASDAQ:CELG) at the end of the second quarter.

#2 Shire PLC (ADR) (NASDAQ:SHPG)

Shares held (as of September 30): 1,093,372

Total Value (as of September 30): $240.10 million

Percent of Portfolio (as of September 30): 0.62%

Arrowstreet Capital is also a fan of Shire PLC (ADR) (NASDAQ:SHPG), in which the fund boosted its stake by over 150%. Having a market cap of $41.61 billion, Shire PLC is a biopharmaceutical company engaged in making medicines for patients with rare diseases and other specialty conditions. Recently, Shire PLC (ADR) (NASDAQ:SHPG) announced that it is acquiring Dyax Corp. (NASDAQ:DYAX) for $37.30 per share in cash for a total value of about $5.9 billion. Massachusetts-based Dyax is a biotechnology company primarily focused on the development of plasma kallikrein (pKal) inhibitors for the treatment of HAE, a debilitating and sometimes life-threatening rare genetic disease. The deal, approved by the boards of directors of both companies, is expected to close in the first half of 2016. Shire PLC (ADR) (NASDAQ:SHPG)’s lost 14.56% during last three months. Among investors we track, John Paulson’s Paulson & Co held around 7.10 million shares of Shire at the end of June.

#1 Biogen Inc (NASDAQ:BIIB)

Shares held (as of September 30): 909,920

Total Value (as of September 30): $299.49 million

Percent of Portfolio (as of September 30): 0.77%

Arrowstreet Capital was bullish on Biogen Inc (NASDAQ:BIIB), boosting its stake by around 200% between July and September. Biogen Inc (NASDAQ:BIIB) is a global biopharmaceutical company engaged in making therapies for people living with serious neurological, autoimmune and rare diseases. The company reported solid financial results for the third quarter, with its revenues increasing by 11% to $2.8 billion, compared to the same quarter last year. Net income increased by an annual 13% to $966 million. Biogen Inc (NASDAQ:BIIB) also announced a corporate restructuring, including an 11% reduction in workforce and the termination of a number of pipeline programs. Biogen expects these changes to reduce the current annual run rate of operating expenses by about $250 million. Shares of Biogen’s stock have dropped by 13.42% year-to-date. Biogen was also the top biotech pick of Krishen Sud’s Sivik Global Healthcare, holding 20,000 shares as of the end of September 30.

Disclosure: none