How Hedge Funds Traded Allergan plc (AGN) Before Its Acquisition

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 (Recession is Imminent: We Need A Travel Ban NOW). 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 how hedge funds traded Allergan plc (NYSE:AGN) right before it was acquired by AbbVie.

Allergan plc (NYSE:AGN) has seen an increase in activity from the world’s largest hedge funds of late. Our calculations also showed that AGN was also 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72% since March 2017 and outperformed the S&P 500 ETFs by more than 44 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Paul Glazer of Glazer Capital

Paul Glazer of Glazer Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we asked astrophysicist Neil deGrasse Tyson about Tesla, Elon Musk, and his top stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the fresh hedge fund action encompassing Allergan plc (NYSE:AGN).

How are hedge funds trading Allergan plc (NYSE:AGN)?

At Q1’s end, a total of 95 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the fourth quarter of 2019. On the other hand, there were a total of 53 hedge funds with a bullish position in AGN a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Phill Gross and Robert Atchinson’s Adage Capital Management has the largest position in Allergan plc (NYSE:AGN), worth close to $1.7 billion, comprising 5% of its total 13F portfolio. Sitting at the No. 2 spot is Farallon Capital, with a $1.647 billion position; 14.4% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism encompass Renaissance Technologies, Dan Loeb’s Third Point and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Twin Capital Management allocated the biggest weight to Allergan plc (NYSE:AGN), around 60.46% of its 13F portfolio. Mason Capital Management is also relatively very bullish on the stock, setting aside 51.88 percent of its 13F equity portfolio to AGN.

With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Farallon Capital, established the biggest position in Allergan plc (NYSE:AGN). Farallon Capital had $1.647 billion invested in the company at the end of the quarter. Kenneth Mario Garschina’s Mason Capital Management also made a $163.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Steven Clark’s Omni Partners, Richard Gerson and Navroz D. Udwadia’s Falcon Edge Capital, and Paul Glazer’s Glazer Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Allergan plc (NYSE:AGN) but similarly valued. We will take a look at Intuitive Surgical, Inc. (NASDAQ:ISRG), The TJX Companies, Inc. (NYSE:TJX), Anthem Inc (NYSE:ANTM), and The Estee Lauder Companies Inc (NYSE:EL). This group of stocks’ market caps are closest to AGN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ISRG 50 964310 -1
TJX 69 1966466 12
ANTM 70 3549888 -1
EL 44 1074094 -6
Average 58.25 1888690 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 58.25 hedge funds with bullish positions and the average amount invested in these stocks was $1889 million. That figure was $12598 million in AGN’s case. Anthem Inc (NYSE:ANTM) is the most popular stock in this table. On the other hand The Estee Lauder Companies Inc (NYSE:EL) is the least popular one with only 44 bullish hedge fund positions. Compared to these stocks Allergan plc (NYSE:AGN) is more popular among hedge funds. 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 7.9% in 2020 through May 22nd and still beat the market by 15.6 percentage points. Considering that AGN was a merger arbitrage play, its 9.9% return during the second quarter (through May 8th) was impressive. 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.