In recent years, some of the most prominent hedge fund victories have been all about health care. Larry Robbins, the billionaire founder of Glenview Capital Management, has generated excellent performance in the last two years by allocating a big chunk of his portfolio to hospital stocks—one of his hedge funds has posted a three-year annualized return of 57%. Billionaire William Ackman had the biggest year of his hedge fund career in 2014 because of Botox-maker Allergan, which was responsible for 19.1% of Ackman’s gross return.
In the first three months of 2015, hedge funds continued to rush into health care, chasing returns in the sector that has led the U.S stock market this year. Hedge funds increased their long exposure to health care to $289.67 billion, according to research firm Novus, making up 10.35% of the net assets under management of stock-picking hedge funds. Novus, which does not include quantitative trading hedge funds in its stock holding analysis, says that in the last year hedge funds have gone from being underweight health care to overweight.
The most popular hedge fund health care stock by far is Actavis, the generic drug maker that bought Allergan this year for $67 billion and is run by Brent Saunders, a CEO who is popular with both Ackman and Carl Icahn. Goldman Sachs released a report on Thursday that showed Actavis is the most popular stock with hedge funds that it tracks, even more popular than Apple. There are 171 hedge funds invested in Actavis and those hedge fund owned $20.3 billion of the stock at the end of March, according to Novus. The only company in America in which hedge funds held more stock, according to Novus, was Apple.
Actavis is a hedge fund-fueled stock. Hedge funds owned 24% of the outstanding shares at the end of March. Big positions in Actavis are owned by funds managed by billionaire John Paulson, whose Paulson & Co., had Actavis as its second-biggest U.S. holding at the end of March, and billionaire Andreas Halvorsen, who has made Actavis the biggest U.S. stock position of his some $30 billion hedge fund.
Actavis was recently the second-biggest holdings of billionaire Dan Loeb’s Third Point hedge fund, which had biotech company Amgen as its biggest position at the end of March. These two stocks alone made up about a quarter of Loeb’s U.S. stock holdings. A big buyer of Actavis in the first quarter of 2015 was billionaire Stephen Mandel’s Lone Pine hedge fund.
Valeant Pharmaceuticals is the second-most popular health care stock with the hedge fund crowd when measured by the value of shares held by hedge funds, according to Novus. There are 100 hedge funds that own $17.8 billion of the stock. Valeant is a hedge fund machine that was essentially created by ValueAct Capital Management, the San Francisco hedge fund run by Jeffrey Ubben. The stock is Ubben’s biggest holding by far, recently making up more than 21% of his U.S. stock portfolio. It made up more than a quarter of Bill Ackman’s U.S. stock portfolio at the end of March after his Pershing Sqaure hedge fund finally took a position this year in the drug maker that Ackman had teamed up with in early 2014 to try to buy Allergan. Valeant is Ackman’s biggest position so far in 2015.
Johnson & Johnson is a health care stock owned by 163 hedge funds. More hedge funds own Johnson & Johnson than any other health care stock except for Actavis. Pfizer is another drug company that has long been very popular with hedge funds, which own more than $6 billion of the stock, as is Gilead Sciences, where 141 hedge funds owned nearly $5 billion of the stock at the end March, according to Novus.
What healthcare stocks were hedge funds buying in the first quarter? Davita Healthcare Partners is one example. They have also been playing the mergers that have dominated the industry, buying shares of Salix Pharmaceuticals, Hospira and Pharmacyclics.
