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Q4 2016 Hedge Fund Trends for Investment Managers

Stephen Bennett Senior Associate, Client Analytics

In this piece, fresh off the release of Q4 2016 HF ownership data, we dive into the latest hedge fund trends for investment managers.

Just 10 days ago the SEC released 13Fs for thousands of hedge funds disclosing their holdings as of year-end. It’s very likely that your fund has reported as well. At Novus, it’s called “Hedge Fund Day,” and it’s a time of ruthless number crunching and validating data on our platform. Once clean, the data makes it into our Hedge Fund Universe, a value-weighted portfolio of some 1300 Hedge Fund managers identified and vetted by Novus.

Our hedge fund clients look to the HFU for insight into the positioning and trading of their peers in the industry. Also, they want to understand any developing pockets of crowding or illiquidity, especially in the names they hold.

Here’s a glimpse at some findings that jumped out at us.

Financials Rotation

In the post-election environment, the hedge fund space rotated sectors towards financial names, shifting from 10.7% to 13% of our Novus Hedge Fund Universe (HFU). Hedge funds overall are still underweight the S&P 1500 at -2.6% based on recent filings. The switch corresponds with a shift away from I.T., which is now more underweight. This could present opportunities for HFs to find Tech securities that were oversold during the mad dash to Financials.

q4 hedge fund trends for investment managers

The most popular financial increases were BAC, JPM, and WFC. Thirty hedge funds initiated positions in BAC, and maintained it as a top hedge fund consensus name. Hedge funds nearly doubled their ownership of Shares Outstanding (S.O.) in BAC, JPM, and WFC during 2016.

q4 hedge fund trends for investment managers

Additionally, ALLY is more popular in the hedge fund space. HFs owned 16% of S.O. at year-end. King Street $48MM and HG Vora $29MM initiated positions, and Cyrus $39MM and EJF $29MM both added. Ally has now become a conviction name, meaning it’s in the top 20 securities that have hedge funds filing a >5% position in the name. This occurred while Cerberus completely exited its activist position. The recent shift in conviction is partially due to tailwinds that ALLY will face as car loan debt continues to rise in the U.S.


Overall, the hedge fund space is slightly overweight Energy. Both Anandarko (APC) and Williams (WMB) saw drops in HF Ownership. Our Novus Contagion feature identified clustering in the Midstream and Upstream companies. There’s heavy overlap in the Upstream space around the Permian Basin with names like RSP Permian, Anadarko, Parsley Energy, and Diamondback Energy. On the Midstream side heavy co-occurrence occurs among Enterprise Products Partners, Williams Partners, Energy Transfer Partners, and Plains All American Pipeline.

APC HF ownership dropped significantly in Q4 from 9.7% to 6.4% of S.O. Notable HF exits include Viking ($595MM), Soroban ($217MM), Highfields ($187MM), Och-Ziff ($115MM), and Corvex ($96MM). Williams HF ownership dropped from 18.0% to 13.7%. The largest exits were Soroban ($653MM), Och-Ziff($250MM), and Senator($188.4MM). That being said, Lone Pine nearly doubled its position to $508MM.

q4 2016 hedge fund trends for managers


Some deals that were announced prior to filings include NXP/Qualcomm and Level 3/CenturyLink. CenturyLink and Level 3 merging offers a larger competitor in the telecomm space to AT&T, while NXP/Qualcomm is a large merger in the semiconductor space. Both these deals have attracted event hedge funds.

NXP Semiconductors/Qualcomm: The announcement in turn created a spike in HF ownership, increasing from Q3 to Q4 from 4.6% to 18.1% of S.O. Largest increases were HBK $842MM, Pentwater $751MM, Eton Park $330MM, Farallon $304MM, Soroban $286MM, and Manikay $163MM. This is a total of $2.68B of capital into the name.

NXPI: Price in comparison to shares owned in the Hedge Fund Universe.

q4 hedge fund trends for investment managers

Level 3/Century Link: HF ownership increased in Q4 from 7.6% to 10.37% of S.O. Pentwater $484MM, Manikay $140MM, Alpine $106MM, Ivory $66MM, and Corvex $64MM entered the name, and Carlson increased its position $221MM. This is a total of $ 1.081B into the name over the quarter.

LVLT: Price in comparison to shares owned in the Hedge Fund Universe.

q4 hedge fund trends for investment managers


The HFU is slightly underweight Healthcare, but is slightly less underweight in the most recent filings. We see some of largest purchases into UnitedHealth Group, Aetna, Quintiles, Anthem, and Celgene Corp, and decreases to Teva, Allergan, and Valeant. The increases in Aetna and Anthem reflect the merger deals with Humana and Cigna, both of which have fallen apart in recent weeks. Humana had mixed opinions in the space with Glenview, the largest owner, reducing its position by 33% ($656MM), while Third Point $204MM and Och Ziff $169.6MM increased. All these names are worth following in the coming months in the likelihood of additional merger attempts.

Of the decreases that we saw, Allergan had some mixed opinions as well. Overall, HF ownership dropped from 7.8% to 6.7%, and AGN is no longer a conviction name among hedge funds. That being said, Appaloosa increased its position by $639MM and is now the top HF owner. Third Point ($794MM), Discovery ($620MM), and Viking ($446MM) exited the name.

q4 hedge fund trends for investment managers


Priceline maintained its Conviction name status, while Expedia lost it. Expedia continues to have a large hedge fund stake. Lone Pine $489MM (cut its position 50%), PAR $804MM, Altimeter $509MM, and Steadfast $334MM are the top owners, representing 12% S.O. Overall, HFs own 25% of S.O. Priceline was a conviction name and a consistent holding among Tiger Hedge Funds during 2016. Specifically, Tiger Global now owns 2.6% of S.O., up from 1.5% a year ago.

Priceline Group, PCLN.

q4 hedge fund trends for investment managers

The HFU is accessible to Novus clients for further analysis.

For more information, take a look at our State of the Industry, an interactive collection of the most important factors for hedge funds. Updated each month, you’ll also find the biggest contributing securities to hedge funds and the top-performing funds for that month based on simulated data.

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