Q3 2019 Filings Insights
A few trends caught our attention as filings were rolling in yesterday. Read on for Occidental Petroleum, Alzheimers, Uber, Fish Oil, and Streaming Wars.
The third quarter was a period characterized by increasing pessimism across equity investors. First, we watched the impact of the US/China trade war, which grew from nervous consternation into existential fear. During the quarter, we also saw the first cracks of nosediving PMIs and a spike in market volatility. This was followed by the hoopla surrounding anticipated growth IPOs and their subsequent stumbles, most notably the aborted listing of WeWork.
At Novus, we were waiting to see how fund managers (particularly hedge funds) would react to these conditions. Would they pare risk in growth and technology, or would they power ahead? We saw our first signs of tangible position-level evidence with Thursday’s ingest of Q3 2019 13F filings. Here, we quickly offer a few of the highlights, and will be providing more in-depth analysis in the weeks to come.
Occidental Petroleum has been a newswire favorite for its high dramas involving a bidding war for Anadarko Petroleum, a debt deal with Warren Buffett, and an entreat by Carl Icahn to clean up a management team. Many quipped that out of the entire fracas, Warren Buffett made it out best, with his $10bn financing deal seemingly the biggest winner of that merger. Buffett turned many people on their heads by filing an equity position in OXY during the quarter.
OXY, of course, has become a relative value (to the eye of the beholder, with the stock down nearly 40% YTD). Of course, the position isn’t meaningful for Berkshire, representing just $330mm of its $215bn of filed assets. But it is a peculiar move in a very downtrodden sector. Other hedge funds were less generous, with numerous net sellers, including Carl Icahn, who trimmed his (much larger) position by nearly 7mm shares. Other major sellers included Two Sigma, Eagle, Cap World, and Encompass. The few notable hedge fund buyers for the quarter were Citadel, Deep Basin, Millennium, and Mason. If you take Buffett out of the equation, hedge funds dumped almost $400mm of OXY during the quarter.
An Alzheimer’s Windfall (BIIB)
Biogen presented some of the most shocking news in healthcare / biotech during October, after they announced the resumption of their headline Azlheimer’s treatment, Aducanumab. When the drug was first pulled from their R&D pipeline, the stock had its worst one-day performance. As you can imagine, October’s announcement led to BIIB’s best one-day performance. While several hedge funds were positioned quite well heading into October, funds on aggregate dumped ~$300mm of the stock during the third quarter. Ouch.
Notable net buyers for the quarter included healthcare managers HealthCor (both common stock and call options), Camber, and Armistice. Multi-managers and Event Driven managers also joined in, including Millennium and David Leone Partners. These fund managers must have had a great October!
Woe that is Uber
Uber saw significant hedge fund selling for the quarter, as many funds who filed ownership of the notorious ride-hailing company in 2Q sold much of their holdings in 3Q. This may have simply been an IPO flip, or it may be symptomatic of the skepticism of certain tech-heavy growth business models. Large net sellers included Citadel, Sculptor, Alyeska, Duquense, Element, and Segantii. Frankly, the list is too long to fully name.
However, several buyers were in force, showing very large positions. On a per fund basis, their net buys were larger than the net sells across wide swaths of managers. These buyers included tech-oriented funds (many of which are San Francisco based) such as Altimeter and Valiant, but also Magnetar, Point72, and Canyon. Viking, a large owner last quarter, added slightly to their position. The net buys across these handful of funds was almost $1bn! Caveat: we saw first time filers from likely private owners in the form of Benchmark and ICONIQ, so many of these aforementioned funds that may have hybrid investment horizons could be in the same boat. With the lockups rolling off in the 4th quarter, we’ll provide an update in February!
Fishing for Fish Oil (Amarin)
Hedge funds often have large accumulation/decumulation into news events, and perhaps none was bigger this quarter in biotech than Amarin’s FDA hearing and data update from its clinical trial for VASCEPA, a fish oil treatment that has found both bulls and bears. In the last few days, the verdict has been overwhelmingly positive for AMRN, and the stock is up big. Did hedge funds position appropriately into the 4th quarter?
The short answer is yes, with nearly $300mm in net buys. We saw large purchases by biotech fund managers such as Boxer, Perceptive, Broadfin, venBio, Comorrant, and First Light. Generalists jumped into the fray, including Artisan, Citadel, and Hood River. Not everyone seemed to nail the trade, with several large sellers including HealthCor, Farallon, Consonance, OrbiMed, and Apis.
The Streaming Wars of Disney and Netflix
During the quarter, we watched the streaming wars heat-up, with content providers such as Disney, Comcast, and Discovery announcing or moving forward with direct-to-consumer offerings. Netflix printed a ‘poor’ quarter, which extended the stock’s troubles, while Disney drew positive reaction from both the sell and buy-side from earnings and then its subsequent net subscriber announcement. How did hedge funds position themselves into this rapidly changing dynamic?
First starting with Netflix, there were several notable large purchasers during the quarter, including Lone Pine ($600mm initiation), Viking (doubled their position to $600mm), D1, Darsana, and Maverick. In terms of funds with “serious conviction” in the name (holders with >750bps of reported assets in the name), only Worm Capital was a serious net seller of the stock, with a dozen others adding to their reported positions. However, several funds did lighten their Netflix holdings, including Citadel, Point72, PointState, Scopia, and Melvin to name a few. Whale Rock, Suvretta, Winslow and Third Point were notable sellers of their entire reported positions. On aggregate, there was nearly $2bn in net buys for the quarter!
With Disney, we saw several bulls step up and buy significant stock, including Manikay, BeaconLight, and Nokota. Seatown, Coatue, and Wexford built initial reported positions in the name, albeit not of significant value compared to their reported portfolios. Sellers of Disney include Citadel, Millennium, SRS, Suvretta, Soros, Holocene, and Senator to name a few. Many of these exited their reported positions completely. On aggregate, there was approximately $1bn of net buys for the mouse. Overall, the relative attractiveness (according to hedge funds) seems tilted towards Netflix.