What Top Hedge Funds Are Buying and Selling

08/22/2013 7:00 am EST

Focus: STOCKS

In Q2 2013, hedge funds bought Dell, Thermo Fisher Scientific, and Apple and sold Google, Procter & Gamble, and Baidu, writes the staff at FactSet Insight.

The 50 largest hedge funds increased their equity exposure by just over 1% in Q2 2013. Dell Inc. (DELL) was the largest addition for the group of funds. While this was primarily due to Icahn Associates’ activity in the buyout target (Icahn’s purchases amounted to over 80% of the increased allocation in the stock), nearly 50% of the funds also purchased Dell in Q2. The largest of these buyers included Elliott Management, which purchased $278 million worth of the stock, and Farallon Capital Management ($181 million).

Excluding Dell, Thermo Fisher Scientific (TMO), a company providing laboratory products and services, analytical technologies and specialty diagnostics, received the highest net inflows from the funds. Five of the 50 funds purchased more than $200 million worth of the stock during the quarter, with Viking Global Investors leading the pack at $792 million in purchases. During the quarter, Thermo Fisher announced an agreement to acquire Life Technologies Corp., a biotechnology research services company, and later held a $2.5 billion stock offering to fund the cash deal. Simultaneously, the top 50 hedge funds liquidated $1.0 billion in Life Technologies over the quarter.

Apple (AAPL) was also noteworthy for receiving significant net inflows in Q2 ($1.4 billion, or 29% of its Q1 starting value) after three consecutive quarters of outflows. Three additional funds picked up the stock over the quarter, but D.E. Shaw & Co. was most bullish by adding 1.8 million shares. While Apple is now held by 46% of funds, Google (GOOG) (64%), AIG (AIG) (52%), Citigroup (C) (52%), and priceline.com (PCLN) (48%) are more widely held. In addition, the hedge funds have appeared to exhibit excellent timing with regards to the shifting sentiment in Apple over the past several quarters. Apple was down $6 from its 52-week low ($390.53) at the end of the quarter, and has since risen over 20%. Similarly, Apple was the largest sale of the top 50 hedge funds in Q1 and Q3 2012, which were both periods preceding quarterly declines in the stock’s price (-2.6% in Q2 2012 and -20.2% in Q4 2012).

The funds also significantly decreased their holding in Google (GOOG)—the most widely held stock of the funds-by selling $1.4 billion worth of its shares. However, the largest dollar-value decrease came from Procter & Gamble (PG) (-$1.7 billion). Pershing Square Capital Management sold the majority of this position during the quarter ($1.5 billion), but Procter & Gamble still comprises a significant weight within the fund’s equity portfolio (7.7%). Bill Ackman, founder and chief executive of Pershing Square, had previously launched an effort to remove the company’s CEO, Bob McDonald, among other changes. The campaign succeeded when former president and CEO, A.G. Lafley, stepped into the role on May 23.

Top 50 Holdings: Top 50 Hedge Funds

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Market value is in millions of dollars and represents the market value held by the top 50 hedge funds at the end of the quarter. The market value change measures the total position change of each security multiplied by its quarter-end price. “% Port” indicates the weight of the stock in an aggregated equity portfolio of the top 50 hedge funds. “% Shares Out” indicates the proportion of the shares outstanding of the stock owned by the aggregated portfolio of the top 50 hedge funds and the “Total” and “50 Highest” lines show the average for this item*. “# of companies” indicates the number of funds (out of the top 50) holding the stock.

Country & Sector Breakdown
At the country-level, the top 50 hedge funds continued their home country bias by adding primarily to US equities (90% of the top 50 funds are domiciled in the US). US equities comprised 86.3% of the aggregate portfolio at the end of Q2, which is up from 80.5% in Q1 2012. Stocks domiciled in China (FXI), on the other hand, received the largest decline in country exposure. This was primarily due to reductions in Baidu (BIDU). The timing of this sale seems to have been poor, however, as the company’s ADR (Cl A) is up more than 40% since June 30th. Baidu’s stock rose rapidly following its July 15 announcement of an agreement to acquire 91 Wireless Websoft, a mobile game and application developer.

Sector-Level: Funds Add to Health Care; Continue to Bet on Consumer Discretionary Over Staples
On the sector-level, the top 50 hedge funds added the most exposure to the Health Care (XLV) sector. This is primarily due to additions to Thermo Fisher Scientific (TMO), Valeant Pharmaceuticals International (VRX), and Zoetis (ZTS). Valeant has returned 78.8% YTD, while Zoetis, a developer of animal health medicines and vaccines, has returned -3.2% since its initial public offering on January 31. These purchases outweighed the sales of Life Technologies Corporation, which was the funds’ third largest sale of the quarter (-$1.0 billion).

On the other end of the spectrum, the funds most reduced exposure to the Financials (XLF) sector. There, sales of AIG made the largest impact. The insurer has returned of 33.3% YTD and recently declared its first dividend in five years.

The funds also slightly added to their overweight position in the Consumer Discretionary (XLY) sector and sold positions in the Consumer Staples (XLP) sector. As a result, the 50 largest hedge funds’ weight in the Consumer Discretionary sector grew to 20.6% at the end of Q2, which was 8.4 percentage points larger than the sector’s weight in the S&P 500 index. In the Consumer Staples sector, the funds held a 6.0% weight, which compared to a weight of 10.5% in the S&P 500.

Market Cap Weightings: Overweight PCLN, EQIX, HAIN, TTWO, Underweight XOM, BRK.B, WMT
On the security-level, LyondellBasell Industries (LYB) was the most overweight equity of S&P 500 constituents in the aggregate portfolio (+2.2 percentage points*), but this was primarily due to Apollo Capital Management’s 15.2% stake in the company. Priceline.com was also overweight (+1.2 points) even though the funds have been taking slight declines to positions in this stock over the past few quarters.

On the other hand, Exxon Mobil Corp. (XOM) was the most underweight holding of all S&P 500 stocks, with a portfolio weight 2.3 percentage points lower than its exposure in the S&P 500 index. Other underweight equities in the portfolio included Berkshire Hathaway Inc. Cl B (BRK.B) (-1.5 points) and Wal-Mart Stores Inc. (WMT) (-1.3 points).

By the Staff at FactSet Insight

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