Were Hedge Funds Right Betting on These Five Stocks in Q1?

Investing in large-cap stocks offer investors a lower exposure to risk from, but they are still prone to volatility, often mimicking the trajectory of the broader market. Moreover, since many smart money investors often have a significant exposure to some large and mega-cap stocks, their drop on the back of unpredictable developments can cause significant pain, which has been recently proven by Valeant Pharmaceuticals. At Insider Monkey, we follow close to 800 hedge funds and other institutional investors, whose 13F portfolios we analyze every quarter and see in which stocks they prefer to invest their capital. Given that the first quarter has just ended, let’s take a look at the performance of the top five stocks, that ranked as the most popular among the funds we track and see if the investors made the right choice betting on them.

The main reason why we track the activity of these funds is our small-cap strategy, which showed that one of the more efficient ways to generate alpha by imitating hedge funds is by following them into the small-cap stocks they are collectively bullish on (see more details here).

Let’s start with Allergan plc Ordinary Shares (NYSE:AGN), which during the last quarter of 2015 saw the number of funds long the stock go up to 159 from 151, which helped it maintain the top spot as the most popular stock among the funds in our database, and the funds from our database amassed more than 18% of the company’s stock heading into 2016. The growth in popularity came amid the announcement of Pfizer’s plans to acquire Allergan in a $160 billion deal. Allergan plc Ordinary Shares (NYSE:AGN)’s stock lost 14% during the fourth quarter, as investors started to become more skeptical regarding the deal, which would represent the largest inversion (Pfizer plans to relocate its headquarters to Dublin after the acquisition to lower its corporate taxes) and might encounter problems while seeking approval from regulators. Nevertheless, both companies have assured that the deal should be completed in the second half of 2016. Among the top shareholders of Allergan plc Ordinary Shares (NYSE:AGN) are Andreas Halvorsen’s Viking Global, Dan Loeb’s Third Point and Paul Singer’s Elliott Management.