You may think that imitating the stock picks of billionaires will make you rich too. You need a reality check. Billionaires start investing differently after they become billionaires. They put most of their money on large-cap stocks because they have too much money to invest it all into small-caps. However, almost all hedge fund managers, including billionaire hedge fund managers, can’t beat the market by a large enough margin by investing in large-cap stocks. That’s one of the reasons why hedge fund investors have been under-performing the market in recent years.
Our research has shown that the 30 most popular stocks among hedge funds outperformed the market by nearly 2 percentage points between 1999 and 2009. Yes, only 2 percentage points. This isn’t enough to justify the high hedge fund fees. On the other hand, investors would have outperformed Vanguard’s index funds by an average of 2 percentage points a year if they had imitated these picks in their personal portfolios. Our research also has shown that hedge funds’ small-cap picks outperformed the market by double digit rates annually between 1999 and 2009 (read the details here). So, overall it is a good idea to pay attention to what hedge funds and billionaires are buying and selling, especially in the small-cap portion of your portfolio.
We recently published the list of the 10 most popular stocks among hedge funds at the close of 2014. Most of those stocks are also very popular among billionaires. This list covers the equity positions of 59 billionaires. We excluded positions that are smaller than $10 million. We ranked each stock by the number of billionaires with bullish positions. As you’ll notice in the forthcoming list, it appears billionaires love merger plays; and credit cards.
1. Allergan, Inc. (NYSE:AGN) is the most popular stock among billionaires. Nearly a third of the billionaires had a position in Allergan at the end of 2014. Billionaires had more than $10 billion invested in the stock, while hedge funds as a group own more than 30% of the stock’s outstanding shares. Bill Ackman, John Paulson, James Dinan and George Soros were among these billionaires. Actavis is in the process of acquiring Allergan. Most billionaires prefer investing in merger arbitrage related stocks; they can get much higher returns than investing in Treasury bonds.
2. Apple Inc. (NASDAQ:AAPL) is the second most popular stock among billionaires. 19 billionaires had more than $10 billion invested in Apple, but this corresponds to less than 2% of Apple’s market value, showing that Apple may be too rich even for their blood. Carl Icahn is probably the most well-known billionaire investor in Apple, and an outspoken bull on the tech giant’s potential. Others include Ken Fisher, David Einhorn, and Rob Citrone.
3. Actavis Plc (NYSE:ACT) is third on our list, with 18 of the 59 billionaires owning a stake in the pharmaceutical company, whose deal to buy the number one company on the list, Allergan, was unanimously approved by shareholders of both companies towards the tail end of last year. Despite only one less billionaire being invested in Actavis than the top two, there is a steep drop off in the amount of equity allocated to it, as the billionaires had just $6.20 billion invested. Andreas Halvorsen, Dan Loeb, and Daniel S. Och are a few of the billionaire investors in Actavis.
4. eBay Inc (NASDAQ:EBAY) lands in fourth with 16 billionaire investors, who have just under $6.74 billion invested in the online auction and retail giant. Icahn is again a prominent investor and activist, with his 46.27 million share stake accounting for over one-third of the entire monetary value of the billionaire’s investments. Icahn was instrumental in the eventual announcement that eBay would spinoff its PayPal division, which sent shares up nearly 8% after the announcement. Barry Rosenstein and Larry Robbins are two of the other large billionaire investors in eBay.
5. Baidu Inc (ADR) (NASDAQ:BIDU) is probably the most interesting stock to make the list, as it doesn’t fall into a neat category that most of the others do. The Chinese search engine giant is one of the most trafficked sites in the world, and yet relatively unheralded in the west, even among investors, despite its meteroic rise of just under 100% over the past two years. Yet billionaires are clearing taking notice, with 16 of them invested in the stock, though it may be too late for the layman to get on board with the stock now trading above $200, though it has fallen substantially in the past three months (down over 15%). Stephen Mandel and Philippe Laffont are the billionaires we track with the largest investments in Baidu.
6. Alibaba Group Holding Ltd (NYSE:BABA), that other Chinese internet giant, lands just behind its compatriot. Alibaba had one less investor than Baidu, though it did have $600 million of additional investments from those billionaires who did invest in it. Alibaba was the talk of the investing world after its record-breaking IPO, but has had a far less glamorous 2015, with missed earnings reports, a stinging Chinese government report over illegal activity taking place on its commerce site, and a stock that has lost over 16.5% of its value. Dan Loeb, Rob Citrone, and Tiger Global Management’s Chase Coleman and Feroz Dewan, are a few of Alibaba’s billionaire investors.
7. Time Warner Cable Inc. (NYSE:TWC) was another company with a notable merger in 2014, as it was purchased by Comcast Corporation (NASDAQ:CMCSA) for $45 billion. That deal still requires regulatory approval however, which investors seem to be extremely unsure of, which is why shares of Time Warner are still well beneath the value of Comcast’s stock offer, which values Time Warner’s shares at over $166 currently. Time Warner is currently trading nearly $20 beneath that level. Are billionaires confident it will receive approval? A few of the ones with large stakes in Time Warner are Daniel S. Och, David Einhorn, and Mario Gabelli.
8. MasterCard Inc. (NYSE:MA) is the first of two major credit cards to make the list, with 15 billionaires investing $4.39 billion. If they were invested in MasterCard early enough in the fourth quarter, they were in for a windfall, as Mastercard jumped over 10% at the end of October on an earnings and sales beat. Stephen Mandel, Warren Buffett, and Andreas Halvorsen are a few of the billionaire investors in MasterCard.
9. Micron Technology, Inc. (NASDAQ:MU) is one of the most popular stocks among all our hedge funds, and that holds true for our billionaire hedgies as well, with 15 of them investing $3.8 billion in the stock. It’s not hard to imagine why anyone rich or not would not want to jump on this stock’s back, as it’s gained a tremendous 424.71% since the start of 2013. David Einhorn, Andreas Halvorsen, and Seth Klarman have all added to their fortunes through this stock, having all held ownership of it for over a year.
10. Visa Inc. (NYSE:V) rounds out the list with 15 billionaire investors sinking $3.08 billion of their money into the other major global credit card brand. Like its prime competitor MasterCard, Visa enjoyed a stirring late October surge after an earnings beat as well, and followed that up with another one at the end of January. Ken Fisher, Warren Buffett, and Stephen Mandel are three of Visa’s top billionaire investors.
Disclosure: None
