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 Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) and determine whether hedge funds skillfully traded this stock.
Is Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) a superb stock to buy now? Hedge funds were getting more optimistic. The number of bullish hedge fund bets increased by 1 lately. Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) was in 57 hedge funds’ portfolios at the end of June. The all time high for this statistics is 56. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ALXN 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 56 hedge funds in our database with ALXN positions at the end of the first quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to take a peek at the recent hedge fund action encompassing Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN).
What does smart money think about Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN)?
At the end of the second quarter, a total of 57 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from the previous quarter. On the other hand, there were a total of 44 hedge funds with a bullish position in ALXN a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Baker Bros. Advisors was the largest shareholder of Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), with a stake worth $983.3 million reported as of the end of September. Trailing Baker Bros. Advisors was Renaissance Technologies, which amassed a stake valued at $502.8 million. OrbiMed Advisors, AQR Capital Management, and Iridian Asset Management 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 Copernicus Capital Management allocated the biggest weight to Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), around 10.46% of its 13F portfolio. Sarissa Capital Management is also relatively very bullish on the stock, setting aside 9.28 percent of its 13F equity portfolio to ALXN.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Deerfield Management, managed by James E. Flynn, assembled the largest position in Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN). Deerfield Management had $20.9 million invested in the company at the end of the quarter. Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management also made a $20.6 million investment in the stock during the quarter. The other funds with brand new ALXN positions are Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management, John W. Rende’s Copernicus Capital Management, and Simon Sadler’s Segantii Capital.
Let’s now review hedge fund activity in other stocks similar to Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN). We will take a look at Credit Suisse Group AG (NYSE:CS), Nokia Corporation (NYSE:NOK), Zimmer Biomet Holdings Inc (NYSE:ZBH), Rockwell Automation Inc. (NYSE:ROK), Waste Connections, Inc. (NYSE:WCN), Telefonica S.A. (NYSE:TEF), and Otis Worldwide Corporation (NYSE:OTIS). This group of stocks’ market values are similar to ALXN’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 36.1 hedge funds with bullish positions and the average amount invested in these stocks was $642 million. That figure was $3578 million in ALXN’s case. Zimmer Biomet Holdings Inc (NYSE:ZBH) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 6 bullish hedge fund positions. Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ALXN is 81.5. 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 positive signal but 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 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately ALXN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ALXN were disappointed as the stock returned -8.7% during the same time period 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.