Long-Term Performance of Hedge Funds’ Popular Picks

The number of investors long Microsoft Corporation (NASDAQ:MSFT) declined to 121 (17.89% of the funds in our system) from 141 (18.80%) during the 1-year period, while the stock gained 22%. Alphabet Inc (NASDAQ:GOOGL)’s class A shares appreciated by 12%, but the number of bullish investors declined by 20 to 135.

In Facebook Inc (NASDAQ:FB), there were 155 investors from our database with long positions heading into the second quarter of 2017, down by nine over the year. However, out of the total number of funds, 22.93% are long Facebook Inc (NASDAQ:FB) as of the end of March, up from 21.40% a year earlier. Moreover, Facebook Inc (NASDAQ:FB) currently ranks as the most popular stock among the funds we track and its shares advanced by 26% between March 2016 and March 2017.

Nevertheless, even though all four tech stocks saw a decline in popularity, they still remained among the top ten overall, which was not the case for two healthcare companies, Pfizer Inc. (NYSE:PFE) and Allergan plc (NYSE:AGN). The number of funds long Pfizer Inc. (NYSE:PFE) slid to 72 from 119 as the stock gained 13% during the 12 months between the end of the first quarters of 2016 and 2017. Allergan plc (NYSE:AGN) dropped by 15% during the same period, while the number of bullish investors declined to 85 from 170 (Allergan was the most popular stock at the end of March 2016).

One of the main catalysts that explains the fall from grace registered by Allergan plc (NYSE:AGN) and Pfizer Inc. (NYSE:PFE) is the break-up of their merger. In 2015, the companies announced a merger worth $150 billion that would have allowed Pfizer Inc. (NYSE:PFE) to move to Ireland, which would’ve cut its tax bill and opened access to the cash it had stashed overseas. The tax inversion was not viewed positively in Washington, especially amid the election campaigns. After some changes in legislation targeting inversions, both companies walked away from the deal as it no longer made sense. Under the terms of the agreement, Pfizer Inc. (NYSE:PFE) paid Allergan plc (NYSE:AGN) a breakup fee of $150 million. In addition, investors might have gotten scared away from health stocks after the Presidential candidates promised to address the issue of drug pricing.

Disclosure: None