It looks like many of the same stocks that fueled performance during the first half of last year and in some cases hurt performance in the second half remained among the favorite hedge fund stocks in the first quarter of this year.
At least seven stocks wound up overlapping on two widely followed rankings based on 13F quarterly filings and published each quarter by Goldman Sachs: One is a list of stocks with the most hedge fund holders, and the other is a list of stocks that most frequently appear among the top ten holdings of hedge funds. Most of these stocks are the familiar momentum-oriented names, mostly technology and Internet companies but also health care and deal stocks.
The seven overlapping stocks are Facebook, now held by 191 hedge funds; Allergan, 184; Alphabet (class A) 174; Apple, 168; Microsoft Corp., 162; Amazon.com, 145; and Yahoo, 118.
In other words, the crowded plays remain crowded.
These stocks produced mixed results last year and in the first quarter of this year. However, what I found even more interesting from the quarterly filings are the stocks that showed the biggest increases in the number of hedge fund participants in the March three-month period.
Yes, Facebook is one of them, with an increase of 26 investors to a total of that 191. But it ranks only No. 7, mostly because it already was very popular.
However, the other nine stocks are rarely found in the portfolios of the momentum-oriented long-short funds. In fact, most of the stocks on this list don’t even have big overall hedge fund participation, suggesting they are not crowded trades and are perhaps undiscovered gems.
The only exception besides Facebook is Baxalta, a biotech company. It heads up the list with the biggest increase in hedge fund owners, with a total of 96, up 38 from the prior quarter. It also now ranks tenth, with 32 hedge funds now counting the stock among their top ten holdings. The big reason: Baxalta is not only a biotech stock but a deal stock as well. The company is being acquired by Irish drug giant Shire.
Among Baxalta’s top ten holders are two New York–based firms that established their entire positions in the first quarter: Och-Ziff Capital Management and Eton Park Capital Management, as well as York Capital Management Global Advisors, which nearly tripled its position during the period.
Other hedge funds that established new large positions in the stock last quarter include Greenwich, Connecticut–based Lone Pine Capital, San Francisco–based Farallon Capital Management, New York–based Third Point and Boston-based Highfields Capital Management.
Not a bad decision. The stock is up nearly 14 percent since year-end.
Alarm company ADT Corp. ranked second among those with the largest increase in hedge fund investors, with 35, bringing the total to 67. This was also a deal stock. The company was acquired by private equity giant Apollo Global Management on May 2. The stock rose 28 percent from year-end.
Gaming and Leisure Properties ranks third with an increase of 30 investors, to a total of 86 hedge funds. It is an unusual company: a gaming industry real estate investment trust (REIT).
The stock has surged nearly 17 percent since year-end. On Thursday the company issued more than 10.5 million shares in a secondary offering from selling shareholders rather than the company’s treasury shares. It was spun off from Penn National Gaming in November 2013.
Hedge funds account for 29 percent of its roughly $5 billion market capitalization. Although no recognizable hedge fund ranks among its largest holders, its largest new investors in the quarter were Los Angeles–based Canyon Capital Advisors, Chicago-based Balyasny Asset Management and New York–based Omega Advisors. The stock has surged 24 percent since year-end.
Tied for third is Nomad Foods, a packaged-foods company that received an enormous leap in hedge fund interest. It picked up 30 new hedge fund investors last quarter, bringing the total to 34. As a result, these investors account for 52 percent of Nomad’s market cap, by far the largest concentration of hedge fund ownership among the most popular hedge fund stocks.
The stock has attracted a large cast of New York–based activist characters. Pershing Square Capital Management is the largest shareholder, while Corvex Management is No. 3 and Third Point is No.4. Meanwhile, Chicago-based Citadel is the fifth-largest shareholder.
Nomad was a special-purpose acquisition company (SPAC) formed in April 2014 by Martin Franklin and Noam Gottesman, the onetime hedge fund manager who co-founded London-based GLG Partners (later acquired by Man Group). Last year Nomad made several acquisitions, including Iglo Foods Holdings, a European frozen-food company best known for its Birds Eye brand, and the Continental European operations of Findus Group. The stock, however, has plummeted 25 percent since year-end, the only loser among the top ten stocks with the biggest increase in hedge fund ownership.
Rounding out the ten stocks with the biggest increase in hedge fund ownership in the first quarter: Monsanto Co., maker of fertilizers and chemicals, which received a takeover offer a few days ago; QTS Realty Trust, a specialized REIT; Facebook; specialty retailer the Michaels Cos.; Domino’s Pizza; and Lumentum Holdings, a maker of communications equipment.
