PayPal, Amazon Were Top 50 Hedge Funds’ Biggest Q3 Buys

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Although Amazon was the top hedge fund buy among the top ten funds during the third quarter, PayPal edged it out when looking at a broader scope of the top 50 hedge funds. Overall, the Health Care and Consumer Staples sectors were the most popular among the 50 biggest hedge funds during the quarter.

Hedge funds snap up Health Care, Consumer Staples stocks

The folks at FactSet analyzed data from the top 50 hedge funds’ 13F filings with the Securities and Exchange Commission, while S&P Capital IQ analysts looked at the top ten funds for their analysis earlier this week.

According to FactSet Research Analyst Andrew Birstingl, the top 50 hedge funds upped their exposure to stocks by 7.6% during the third quarter. He reports that stocks in the Health Care and Consumer Staples stocks were the most popular according to total value of the purchases made and that four of the top ten favorite stocks were in these two sectors.

Baxter, Allergan lead the way in Health Care

He found that the top 50 hedge funds grabbed up $16.3 billion worth of Health Care shares during the third quarter and that three of the top ten stocks (Baxter, Allergan and Teva) were from the sector. The fund purchased, in total $2.1 billion worth of Baxter shares during the quarter, with Dan Loeb’s Third Point being one of the biggest purchasers. The firm added $1.3 billion to its preexisting position during the quarter. JANA Partners also purchased a significant amount of Baxter stock, establishing a 2.3% stake worth more than $400 million.

In second place was Allergan, with the 50 biggest hedge funds buying a total of $1.7 billion worth of the Botox maker’s stock. Discovery Capital led the way in Allergan purchases with $290 Million, while Visium Asset Management added $270 million in Allergan stock to its holdings.

Allergan a widely held stock

Birstingl also found that Allergan was not only the top holding of the 50 biggest hedge funds but also the second most widely held, trailing only Time Warner Cable. In aggregate, Allergan was 1.4% of hedge fund portfolios. As of the end of the third quarter, 28 of the funds owned shares of Allergan, and three of the funds had the drug company as their biggest holding.

The bet didn’t pay off for these funds, however, as Allergan shares fell 11.4% during the quarter.

PayPal, Amazon lead among all stocks

Looking at all of the sectors, PayPal (which was only recently spun off from eBay, making it a newly available stock during the quarter), racked up the most purchases among the top 50 hedge funds with $3.2 billion worth of shares being added to the aggregate portfolio. Carl Icahn’s fund Icahn Associates Holdings led the way with a 3.8% stake worth $1.4 billion.

Interestingly, Icahn unloaded all of his stake in former parent company eBay during the quarter, dumping 46.3 million shares worth $1.7 billion into the market. The activist investor’s dumping of eBay stock was part of a larger trend among the biggest hedge funds, however, as eBay was the third largest aggregate sale during the quarter.

Amazon was the second biggest overall purchase during the quarter with the biggest hedge funds grabbing up $3.2 billion worth of the online retailer’s shares. Tiger Global Management led the way, adding $1.3 billion worth of Amazon shares to its holdings. Lone Pine Capital also contributed significantly to the purchases of Amazon during the third quarter, establishing a new position worth $992 million.

Here’s a look at the full list of the top ten purchases among the biggest 50 hedge funds during the third quarter:

AT&T, Apple lead the way in sales

FactSet found that the Telecom sector was out of favor with the top 50 hedge funds, as they unloaded $3.4 billion worth of Telecom stocks in aggregate. The largest contributor to that selloff by far was AT&T, which accounted for $3.2 billion of the sales. Highfields Capital Management sold $716 million worth of shares, while Pentwater Capital Management dumped $732 million in shares and D.E. Shaw Group sold $453 million in AT&T stock. Shaw actually led the way with the most sales in the Telecom sector.

Interestingly, Wall Street darling Apple was the second most popular sell during the third quarter among the top 50 hedge funds. In aggregate, the iPhone maker racked up $1.2 billion in sales, with Discovery Capital, Citadel Advisors, and Shaw leading the way in sales. The selloff in Apple shares sent the stock down 12.9% during the third quarter, although Carl Icahn maintained his 52.8 million share position in it, which keeps him one of the company’s biggest shareholders.

Consumer Discretionary weighs the most

Birstingl also reports that as of the end of the quarter, the top 50 hedge funds’ biggest exposure sector-wise was Consumer Discretionary with 17.7% of the aggregate portfolio being allotted to the sector. This observation was the same as the second quarter, although during the third quarter, the sector became the biggest weighted sector, unseating Information Technology.

On a quarter over quarter basis, the sector with the biggest increase in exposure was the Consumer Staples sector, which saw a 1.1 percentage point increase. The biggest decline was in Energy, which lost 1 percentage point in exposure.

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 analyst added. As you can see from the following graph, Consumer Discretionary was the most overweight sector, while Financials was the most underweight.

Hedge Funds

Overweight Time Warner, Allergan and underweight Alphabet Exxon

FactSet found that the most overweight stock of the S&P 500 was Time Warner Cable at 2.2 percentage points. In the previous quarter, the firm as also the most overweight stock, although its portfolio was only 1.1 percentage points higher than its index weight. Also Time Warner Cable was the most widely held stock by the funds and the second biggest holding. Thirty of the 50 top hedge funds had a position in the company, which made up 1.4% of the aggregate portfolio. Four of the funds had the stock as its top holding.

Hedge funds were also overweight on Allergan by 1.9 percentage points and Air Products and Chemicals by 1.1 percentage points. At the other end of the spectrum, the most underweight stock in the S&P 500 was Class C shares of Google parent company Alphabet Holdings. Alphabet’s portfolio weight was 1.9 percentage points lower than its S&P 500 exposure. The funds were underweight ExxonMobil by 1.6 percentage points, Berkshire Hathaway by 1.5 percentage points, and Apple by 1.5 percentage points.

U.S. was in, China was out

U.S. equities made up 85.1% of the aggregate portfolio at the end of the quarter, marking a slight increase quarter over quarter as funds bought $49.2 billion worth of U.S. stocks.

Unsurprisingly, China was highly unpopular among the biggest hedge funds, as they unloaded $404 million worth of Chinese equities during the quarter. However, the selloff wasn’t as bad as it was in the second quarter when the funds sold $2.2 billion worth of Chinese equities. Further, the top 50 funds upped the value of their holdings in two of China’s biggest tech firms, adding $53 million to their positions in Baidu and $184 million to their holdings in NetEase. However, Baidu shares declined 30.8%, while NetEase shares fell 16.7% during the quarter.

Graphs in this article are courtesy FactSet.

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