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The top 50 hedge funds increased their equity exposure by 7.6% in Q3 2015. The Health Care and Consumer Staples sectors were the two most popular groups in terms of total value of purchases, with four of the top ten purchases in the quarter coming from companies in these sectors.

The top 50 hedge funds purchased $16.3 billion worth of shares in the Health Care sector in the third quarter. Three of the top ten purchases came from this sector (Baxter International, Allergan plc, and Teva Pharmaceutical Industries). Baxter International was the largest buy, with $2.1 billion worth of shares being added to the stock in Q3. Third Point LLC was a major contributor, as it increased its existing position in the health technology company by $1.3 billion. Additionally, JANA Partners took a 2.3% stake in Baxter in Q3 worth over $400 million. Allergan plc was the second largest purchase in the Health Care sector, with $1.7 billion worth of shares bought by the 50 largest hedge funds. This purchase was led by Discovery Capital (+$290 million) and Visium Asset Management (+$270 million). The specialty pharmaceutical company was also the top holding of the 50 largest hedge funds and the second most widely held stock behind Time Warner Cable. Allergan made up 1.4% of the aggregate hedge fund portfolio. At the end of Q3, 28 out of the 50 funds had a position in Allergan and three of those funds had the company as their top holding. The stock declined 11.4% in the third quarter.

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The Consumer Staples sector saw $9.5 billion worth of stock added by the top 50 hedge funds. The largest purchase came from U.S. snack and beverage manufacturer, Mondelez International. The top 50 hedge funds purchased $1.6 billion worth of shares in Mondelez, led by the 2.7% stake disclosed by Bill Ackman’s Pershing Square Capital Management. It is interesting to note that Mondelez was one of the top sales in Q2, with over $1.5 billion being removed from the stock. The maker of Oreo and Chips Ahoy! has seen its stock increase 0.6% in the third quarter, but it is down 6.4% since Pershing Square disclosed its initial stake in its 13-D filing on August 6th.

Top Purchases: PayPal and Amazon; Top Sales: AT&T and Apple

Across all sectors, the top purchases by the 50 largest hedge funds were PayPal Holdings and Amazon. PayPal is a digital and mobile payments company that was spun off from eBay in the middle of July. The hedge funds added $3.2 billion worth of PayPal stock to the aggregate portfolio in Q3, led by the 3.8% stake ($1.4 billion) taken by Icahn Associates Holdings. It is interesting to note that Icahn Associates sold out of its entire position in eBay’s stock during the quarter, which consisted of 46.3 million shares (-$1.7 billion). Ebay represented the third largest aggregate sale in Q3 by the top 50 hedge funds. Amazon was the second largest purchase overall. The online retailer saw $3.2 billion worth of stock added by hedge funds, led by a $1.3 billion increase from Tiger Global Management, and a new stake taken by Lone Pine Capital worth $992 million.

On the other end of the spectrum, the hedge funds sold large interests in AT&T and Apple. The Telecom sector saw $3.4 billion worth of aggregate sales in the third quarter, which was primarily driven by the $3.2 billion removed from AT&T. Highfields Capital Management (-$716 million), Pentwater Capital Management (-$732 million), and D.E. Shaw Group (-$453 million) all decreased their existing positions and led the exodus out of the wireless communications company. The top 50 funds also removed large chunks of Apple from the aggregate portfolio. The iPhone maker saw aggregate sales amounting to $1.2 billion in Q3. Discovery Capital Management, Citadel Advisors, D.E. Shaw Group, Millennium Management, EgertonCapital, and Coatue Management all contributed to the decline, as each sold more than $100 million worth of stock in Q3. Contrastingly, Icahn Associates, one of Apple’s largest shareholders, stood firm and maintained its full position of 52.8 million shares, despite the stock declining 12.9% in the third quarter.

Consumer Discretionary Has Largest Weight in Aggregate Hedge Fund Portfolio

At the end of the third quarter, the top 50 hedge funds had the largest exposure to the Consumer Discretionary (17.7%) and Information Technology (17.1%) sectors. This was consistent with the second quarter, except that in Q3, the Consumer Discretionary group was the largest weighted sector rather than the Information Technology group. The largest increase in sector exposure in Q3 for the aggregate hedge fund portfolio, compared to Q2, came from the Consumer Staples group (+1.1 percentage points). The largest decrease in sector exposure for the portfolio, compared to Q2, came from the Energy group (-1 percentage points). On a relative basis versus the GICS sector weights of the S&P 500, the aggregate hedge fund portfolio was overweight in five sectors and underweight in five sectors. The most overweight sectors were the Consumer Discretionary (17.7% vs 13.1%) and Materials (5.6% vs 2.8%) groups, while the most underweight sectors were the Financials (12.6% vs 16.5%) and Information Technology (17.1% vs 20.4%) groups.

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Funds Add $49 Billion to U.S. Equities

At the country level, the top 50 hedge funds increased their exposure to the United States and decreased their exposure to China. U.S. equities made up 85.1% of the aggregate portfolio of equity holdings at the end of the third quarter, which represented a slight increase from the second quarter. The hedge funds purchased $49.2 billion worth of shares in U.S. equities, which was over $10 billion greater than the value of aggregate purchases of U.S. equities in Q2. The total value of purchases of Chinese equities fell in the third quarter (-$404 million), but the pullback was not as severe as that of the prior quarter (-$2.2 billion). In fact, the top 50 hedge funds increased their total value in two of the largest technology companies in China, Baidu (+$53 million) and NetEase (+$184 million). Despite this increase in exposure, these companies’ stocks were still down 30.8% and 16.7%, respectively, in the third quarter.

Security-Level: Funds Overweight Time Warner Cable and Allergan; Underweight Alphabet and Exxon

At the security level, Time Warner Cable was the most overweight equity of the S&P 500 constituents in the aggregate hedge fund portfolio (+2.2 percentage points*). In the second quarter, the company was also the most overweight equity, but its portfolio weight was only 1.1 percentage points greater than its weight in the index. In addition, Time Warner Cable was the most widely held stock by the top 50 hedge funds in Q3 and also the second largest holding. At the end of Q3, 30 out of the 50 hedge funds had a position in the stock of the internet and cable provider. Time Warner Cable made up 1.4% of the portfolio of equity holdings and was the top holding of four of the hedge funds.

Allergan (+1.9 percentage points), Air Products and Chemicals (+1.1 percentage points), and Walgreens Boots Alliance (+0.8 percentage points) were several of the other most overweight equities. On the other hand, Alphabet Class C was the most underweight holding of the S&P 500 companies, with a portfolio weight 1.9 percentage points lower than its exposure in the S&P 500 index. Exxon Mobil (-1.6 percentage points), Berkshire Hathaway (-1.5 percentage points), and Apple (-1.5 percentage points) were several of the other most underweight equites.

*Note that security-level overexposures are determined by excluding the funds’ positions in securities that are not within the S&P 500 index. For a view of the favorite stocks of the top 50 hedge funds in absolute terms (as opposed to index-relative comparisons), please refer to page 11. The table on page 11 examines the largest and smallest holdings of each GICS industry group in the aggregate portfolio.

Activist Investors Take New Positions in Freeport-McMoran and Kraft Heinz; Sell Juniper Networks

The “SharkWatch50” is a compilation of the fifty most significant activist investors as chosen by FactSet. During the third quarter, the eleven SharkWatch activist investors within the top 50 hedge funds took several notable positions in addition to those already mentioned in this report. Two of the largest new positions were in Freeport-McMoran and Kraft Heinz. Carl Icahn’s Icahn Associates Holdings took an 8.8% stake ($969 million) in the mining company, and was granted two board representatives after engaging in discussions with management during the third quarter. Third Point LLC made a $582 million investment in the newly formed food and beverage manufacturer, Kraft Heinz.

Two companies that faced notable investment exits by activists were Precision Castparts and Intercontinental Exchange. JANA Partners sold its 2.9% stake in Precision Castparts, while Corvex exited its 3% stake in Intercontinental Exchange.

In terms of position increases, the SharkWatch funds added to their investments in Cheniere Energy and Sysco. Icahn Associates Holdings purchased $1.3 billion worth of stock in Cheniere Energy, while Trian Fund Management bought $1.2 billion worth of stock in Sysco. Both companies were subject to activist campaigns in the third quarter and gave up two board representatives to the activists as a result.

In terms of position decreases, the SharkWatch funds decreased their aggregate position in Juniper Networks. Elliott Management dumped 95% of its shares of Juniper Networks, which amounted to $840 million worth of shares.

Read more in Hedge Fund Ownership Quarterly

Download the full report for more, including:

  • Sector-Level and Company-Level Weighting Relative to S&P 500
  • Top 50 Holdings: Top 50 Hedge Funds
  • Three-month Largest Holding Value Changes
  • Country Breakdown: Top 50 Hedge Funds
  • Sector Breakdown: Top 50 Hedge Funds versus S&P 500
  • Sector Movement: Top 50 Hedge Funds versus S&P 500
  • Cap Group Breakdown: Top 50 Hedge Funds

Read more about the ownership trends of hedge funds in this quarter's edition of FactSet Hedge Fund Ownership Quarterly. Visit www.factset.com/hedgefund_ownership to launch the latest report.

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Research Analyst
Andrew left FactSet in 2017. While with the firm, he worked with financial professionals in equity research, macro-strategy, institutional equity sales, investment banking, and wealth management.

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