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Did Hedge Funds Make The Right Call On Takeda Pharmaceutical Company Limited (TAK) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Takeda Pharmaceutical Company Limited (NYSE:TAK) and determine whether hedge funds skillfully traded this stock.

Takeda Pharmaceutical Company Limited (NYSE:TAK) shareholders have witnessed a decrease in hedge fund sentiment in recent months. Our calculations also showed that TAK isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

largest hedge funds in the world

John Paulson of Paulson & Co

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind let’s take a glance at the key hedge fund action surrounding Takeda Pharmaceutical Company Limited (NYSE:TAK).

Hedge fund activity in Takeda Pharmaceutical Company Limited (NYSE:TAK)

At Q1’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TAK over the last 18 quarters. So, let’s examine 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 $302.9 million at the end of the third quarter. On the second spot was Paulson & Co which amassed $201.1 million worth of shares. Renaissance Technologies, GMT Capital, and LMR Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Glenview Capital allocated the biggest weight to Takeda Pharmaceutical Company Limited (NYSE:TAK), around 8.24% of its 13F portfolio. Paulson & Co is also relatively very bullish on the stock, setting aside 7.67 percent of its 13F equity portfolio to TAK.

Judging by the fact that Takeda Pharmaceutical Company Limited (NYSE:TAK) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there were a few fund managers that slashed their entire stakes last quarter. At the top of the heap, Michel Massoud’s Melqart Asset Management sold off the biggest stake of the 750 funds tracked by Insider Monkey, comprising close to $30.7 million in stock, and Carl Tiedemann and Michael Tiedemann’s TIG Advisors was right behind this move, as the fund sold off about $21.2 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 6 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Takeda Pharmaceutical Company Limited (NYSE:TAK) but similarly valued. We will take a look at Micron Technology, Inc. (NASDAQ:MU), Target Corporation (NYSE:TGT), Brookfield Asset Management Inc. (NYSE:BAM), and CNOOC Limited (NYSE:CEO). All of these stocks’ market caps resemble TAK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MU 94 3990785 5
TGT 54 2208909 1
BAM 37 886441 3
CEO 11 178140 -3
Average 49 1816069 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 49 hedge funds with bullish positions and the average amount invested in these stocks was $1816 million. That figure was $735 million in TAK’s case. Micron Technology, Inc. (NASDAQ:MU) is the most popular stock in this table. On the other hand CNOOC Limited (NYSE:CEO) is the least popular one with only 11 bullish hedge fund positions. Takeda Pharmaceutical Company Limited (NYSE:TAK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately TAK wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TAK investors were disappointed as the stock returned 18.1% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.