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Quarterly Filings

Q3 2021 Filings Insights

Hedge fund managers make dramatic shifts in their positions as sectors rotate and company-specific news dominates

Nathan Innis
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Top 20 Names in The Hedge Fund Universe

Aside from the usual brownian motion, there wasn’t a lot of churn on the list of commonly held names within the Novus Hedge Fund Universe (HFU). Still, there were a couple surprises.

Figure 1: Top 20 Names in the HFU, compared to previous quarter

Bank of America continues to slip slowly from fund managers’ graces, replaced in the 5-slot by Nationwide Building Society, a British firm for which there’s no real analogue in the U.S. As a depository institution, its main business is mortgage lending. Nationwide’s structure, though, is as a cooperative; it’s what a credit union would be if it had an 8% share of the American market. Three months ago, it was in 45th place on this list.

Cloud software giant Salesforce and Singaporean holding company Sea Ltd. also made the Top 20 cut at the end of the third quarter, but with less dramatic flair.

Nvidia’s investor relations team might be experiencing a little vertigo. Last time in this space, we reported that the chip maker rose from 35th place to 11th. Today, we’re reporting that it dropped back down to 27th. This time, though, its competitors moved in the same direction.

One oddball event to note is that, over the second quarter, Alphabet’s voting shares—GOOGL —jumped three places in the standings while its non-voting shares—GOOG—maintained their position. This likely has to do with the opportunity presented by GOOGL’s slightly underperforming GOOG. It’s one thing to give up voting rights if it improves your economic interest, but quite another to give it up for no benefit.

The only FAANG stock to move sharply was Netflix, which rose from 19th to 15th place. Could it have something to do with the Squid Game hype? That company insiders are reportedly cashing in their options? That hedge fund managers are looking to increase their exposure to artificial intelligence and that’s something Netflix does particularly well? None of these explanations are mutually exclusive.

But now that Facebook is calling itself Meta, do we need to create a new acronym? How about MANGA stocks? You read it here first.

If you're looking for more insights from top hedge funds as well as aggregate trends, take a look at our Hedge Fund Ownership dashboard.

Managers in the News

Scott Glasser

The third quarter’s biggest Netflix buyer was ClearBridge Investments. It’s also the quarter that, after a long transition period, Scott Glasser finally took sole responsibility over ClearBridge’s chief investment officer position. He had shared that title with Hersh Cohen for nine years, so we can see this leap from near-zero exposure to a nearly $900 million stake to be his first major move as a committee of one.

Dmitry Balyasny

Is there a doctor in the house? Yes, probably, if it’s Dmitry Balyasny’s Chicago home. The founder of Balyasny Asset Management has been busy this past quarter buying up a lot of healthcare names.

Individually, none of these purchases amount to a big bet, but there sure are a bunch of them. Sarepta Therapeutics, Theravance Biopharma, Exact Sciences are all small, research-intensive biotechs with share prices that had been beaten down over the past year. BAM had no exposure to any of them until the third quarter, when suddenly it became an aggressive buyer.

Sarepta treats muscular dystrophy, Teravance relieves COPD symptoms and Exact screens for colorectal cancer. We wish Mr. Balyasny continued good health.

Figure 2: Explore these changes in Balyasny Asset Management's portfolio from the Manager Analysis Insights Dashboard.

You can explore Balyasny Asset Management on the Novus Platform for free through the end of the quarter on our Manager Analysis Insights Dashboard.

General Trends

Foot rests lighter on the gas pedal

Investors added an estimated net $5.6 billion into hedge funds in October, less than half inflows of the second quarter, according to Pensions & Investments, citing Hedge Fund Research. Performance-based asset growth in the fall absolutely paled that of the summer—$2.4 billion versus $145.9 billion.

It’s one of those cases when a new record high is reached but the news isn’t all that great. True, hedge funds now sit atop an unprecedented $3.97 trillion in AUM, but that’s only because they managed to tread water after the second quarter’s $3.96 trillion tally. The real story isn’t the record, but the struggle to grasp it with one fingernail.

Still, there were bright spots.

“Interest rate-sensitive Relative Value Arbitrage strategies led both performance and inflows for the quarter, while managers and investors alike focused portfolios on interest rate exposures, as the U.S. Federal Reserve signaled a decrease in bond purchases in coming months leading to an expectation of higher interest rates into 2022,” according to Hedge Fund Research President Kenneth J. Heinz.

Hedge funds focusing more on ESG

No really. Seriously. Environmental, social, and governance concerns are finding their way into even the coldest quant’s heart. We know because Deloitte says so.

Funds “that made a lot of progress quantifying the impact of diversity, equity, and inclusion (DEI) initiatives were more likely to indicate that employee engagement and productivity have become much stronger since the start of 2021,” according to Deloitte’s 2022 investment management industry outlook.

Separately, ClearBridge Investments’ Mary Jane McQuillen told Reuters that, while some companies are eager to become more sustainable, others are defensive and don't want to be burdened by yet another topic of investor interest. A third group, McQuillen said, admits there is much about sustainable reporting they don't know, and is seeking input from their shareholders.

"They say, 'we really don't know what the issues are. If you can help us as an owner, and with your years of experience as an investor in understanding how these issues may apply to my industry, as well as to my particular company, that would be super helpful," she said.

For what it’s worth, Netflix—ClearBridge’s big 3Q bet as reported above—has a solid but not stellar “B” grade from Ethos, which tracks ESG issues. Morningstar takes a dimmer view of Netflix’s stewardship, ranking it 44 out of 66 entertainment companies.  

“This ranking is explained by its low management scores on issues like corporate governance, business ethics, and human capital,” Morningstar reports.

OK, so maybe there’s still a bit of a disconnect.

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Our team of world-class client management analysts will introduce you to our product, tailoring the conversation to your specific needs and interests.