At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Takeda Pharmaceutical Company Limited (NYSE:TAK) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Takeda Pharmaceutical Company Limited (NYSE:TAK) the right pick for your portfolio? Investors who are in the know were turning less bullish. The number of long hedge fund positions were cut by 4 in recent months. Takeda Pharmaceutical Company Limited (NYSE:TAK) was in 18 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 35. Our calculations also showed that TAK isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 22 hedge funds in our database with TAK positions at the end of the first quarter.
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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a look at the latest hedge fund action encompassing Takeda Pharmaceutical Company Limited (NYSE:TAK).
What have hedge funds been doing with Takeda Pharmaceutical Company Limited (NYSE:TAK)?
At Q2’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TAK over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Takeda Pharmaceutical Company Limited (NYSE:TAK) was held by Glenview Capital, which reported holding $290.4 million worth of stock at the end of September. It was followed by Paulson & Co with a $206 million position. Other investors bullish on the company included Renaissance Technologies, GMT Capital, and LMR Partners. In terms of the portfolio weights assigned to each position Glenview Capital allocated the biggest weight to Takeda Pharmaceutical Company Limited (NYSE:TAK), around 8.01% of its 13F portfolio. Paulson & Co is also relatively very bullish on the stock, setting aside 6.58 percent of its 13F equity portfolio to TAK.
Because Takeda Pharmaceutical Company Limited (NYSE:TAK) has witnessed falling interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of money managers who were dropping their full holdings by the end of the second quarter. It’s worth mentioning that D. E. Shaw’s D E Shaw dumped the largest investment of the “upper crust” of funds watched by Insider Monkey, comprising close to $3 million in stock, and Vishal Saluja and Pham Quang’s Endurant Capital Management was right behind this move, as the fund sold off about $2.4 million worth. These transactions are important to note, as total hedge fund interest fell by 4 funds by the end of the second quarter.
Let’s check out 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 U.S. Bancorp (NYSE:USB), Applied Materials, Inc. (NASDAQ:AMAT), Illinois Tool Works Inc. (NYSE:ITW), America Movil SAB de CV (NYSE:AMX), The Southern Company (NYSE:SO), Illumina, Inc. (NASDAQ:ILMN), and Marsh & McLennan Companies, Inc. (NYSE:MMC). This group of stocks’ market values are similar to TAK’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.4 hedge funds with bullish positions and the average amount invested in these stocks was $1689 million. That figure was $790 million in TAK’s case. Applied Materials, Inc. (NASDAQ:AMAT) is the most popular stock in this table. On the other hand America Movil SAB de CV (NYSE:AMX) 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. Our overall hedge fund sentiment score for TAK is 23.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 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 -0.5% in the third 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.
Disclosure: None. This article was originally published at Insider Monkey.