Were Hedge Funds Right About Allergan plc (AGN)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going even though the mainstream financial media journalists don’t agree with this approach. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Allergan plc (NYSE:AGN).

Allergan plc (NYSE:AGN) investors should be aware of an increase in hedge fund interest of late. AGN was in 86 hedge funds’ portfolios at the end of December. There were 84 hedge funds in our database with AGN positions at the end of the previous quarter. Our calculations also showed that AGN ranked 25th among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

If you listen to the mainstream financial media, you should avoid stock picking and invest in low-cost index funds. This is indeed what you should do if you want to generate average returns. Mainstream financial media journalists try to make you believe that it isn’t possible to pick winners and losers, and you should ignore the stock picks of hedge fund managers. You may remember reading an article in the WSJ that said “random dart throwing monkeys beat hedge fund stars”. What they fail to tell you is that the top 5 hedge fund stocks returned more than 30% since the end of 2018 and beat the S&P 500 Index by nearly 25 percentage points. You can’t explain this kind of outperformance by luck or coincidence. WSJ will need an army of monkeys to throw darts and tens of thousands of attempts to match these returns.


Dan Loeb of Third Point

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations We are probably at the peak of the COVID-19 pandemic, so we check out this biotech investor’s coronavirus picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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. Now we’re going to take a look at the new hedge fund action surrounding Allergan plc (NYSE:AGN).

What have hedge funds been doing with Allergan plc (NYSE:AGN)?

Heading into the first quarter of 2020, a total of 86 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from the third quarter of 2019. On the other hand, there were a total of 61 hedge funds with a bullish position in AGN a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is AGN A Good Stock To Buy?

Among these funds, Adage Capital Management held the most valuable stake in Allergan plc (NYSE:AGN), which was worth $1257.6 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $959.6 million worth of shares. Third Point, Millennium Management, and Paulson & Co 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 Governors Lane allocated the biggest weight to Allergan plc (NYSE:AGN), around 25.39% of its 13F portfolio. Twin Capital Management is also relatively very bullish on the stock, earmarking 24.74 percent of its 13F equity portfolio to AGN.

As one would reasonably expect, key hedge funds have jumped into Allergan plc (NYSE:AGN) headfirst. Abrams Capital Management, managed by David Abrams, created the most outsized position in Allergan plc (NYSE:AGN). Abrams Capital Management had $236.7 million invested in the company at the end of the quarter. Simon Sadler’s Segantii Capital also initiated a $193.4 million position during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel’s Two Sigma Advisors, Benjamin A. Smith’s Laurion Capital Management, and Louis Bacon’s Moore Global Investments.

Let’s also examine hedge fund activity in other stocks similar to Allergan plc (NYSE:AGN). We will take a look at VMware, Inc. (NYSE:VMW), Takeda Pharmaceutical Company Limited (NYSE:TAK), Enterprise Products Partners L.P. (NYSE:EPD), and Raytheon Company (NYSE:RTN). This group of stocks’ market values are closest to AGN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VMW 33 777041 -4
TAK 28 1186486 -3
EPD 28 340248 4
RTN 53 3458796 -1
Average 35.5 1440643 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $1441 million. That figure was $9928 million in AGN’s case. Raytheon Company (NYSE:RTN) is the most popular stock in this table. On the other hand Takeda Pharmaceutical Company Limited (NYSE:TAK) is the least popular one with only 28 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 lost 1.0% in 2020 through April 20th but still managed to beat the market by 11 percentage points. Hedge funds were also right about betting on AGN, though not to the same extent, as the stock returned -1.2% in 2020 (through April 20th) and outperformed the market as well.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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