Whether or not you realize it, one of the most highly anticipated deadlines just passed. In mid-August, 45 days after the end of the fiscal second quarter, money managers with more than $100 million in qualifying assets had to have filed Form 13F with the Securities and Exchange Commission. Form 13F offers Wall Street and investors a transparent look at what the wealthiest and most successful money managers were up to during the quarter.
Although Form 13F is giving us a picture of outdated data -- it's 45 days old -- and blindly following the whims of billionaires isn't something we advocate at The Motley Fool, understanding why billionaires are making the stock moves they are can help us gain a better understanding of the stocks we care the most about.
What stood out like a sore thumb in the second quarter, to me at least, was the billionaire exodus from a handful of companies. Although there were buyers, the billionaire sellers seemed to far outnumbered the optimists in these four stocks.
Israeli-based pharmaceutical giant Teva Pharmaceutical (NYSE:TEVA) wasn't shown much love during the second quarter, with billionaire money managers Julian Robertson of Tiger Management and Andreas Halvorsen of Viking Global hitting the sell button. Tiger Management exited its entire position in Teva, selling all 356,200 shares it had owned since the fourth quarter of 2015, while Viking Global trimmed its stake in Teva by more than 5.2 million shares. Viking still holds 27.74 million shares of Teva, worth about $1.4 billion.
The reason why Robertson and Halvorsen wanted to reduce their exposure to Teva likely ties into its $40.5 billion acquisition of Allergan's generic drug unit. Trying to incorporate such a massive generic drug segment into its own hybrid branded and generic drug business could take some time and lead to some organizational hiccups.
However, I believe these billionaires have overlooked the pricing power and diversity that Teva will now have as the world's leading generic drug provider. The IMS Institute for Healthcare Informatics is forecasting that generic prescriptions could rise from 88% of all scripts written in 2015 to 91%-92% by the end of the decade. Even with the lower margins associated with generic drugs, the sheer increase in volume should bode well for Teva over the long-term.
Even though quite a few smaller hedge funds added Barrick Gold (NYSE:ABX) to their portfolios during Q2, some very big names jettisoned this mining giant. James Simons, who runs Renaissance Technologies, sold just over 9 million shares of Barrick Gold, or nearly a third of its total position, while George Soros of Soros Fund Management dumped 18.35 million shares of Barrick, leaving his fund with only 1.07 million shares as of the end of Q2.
It doesn't appear there were any fundamental reasons behind Soros' and Simons' exodus from Barrick Gold. Instead, it looks like it was an opportunity to take profits after Barrick's share price jumped 189% between Jan. 1, 2016 and June 30, 2016.
Will Soros and Simons regret the move? I'd like to think so given that Barrick Gold reduced its debt load by $3.1 billion in 2015 and is on track to knock another $2 billion off this year. Reduced net interest expenses and improved financial flexibility, coupled with Barrick spending its capital on only the most promising and high ore grade projects, has pushed Barrick Gold's all-in sustaining cost projections down to just $770 an ounce at the midpoint in 2016. This well-run miner is far from a "sell" in my view.
According to 13F aggregator WhaleWisdom.com, streaming content giant Netflix (NASDAQ:NFLX) had an aggregate reduction of 5% in terms of ownership among funds filing 13Fs in the second quarter. Some of those sellers were big names, including Chase Coleman III's Tiger Global Management, which sold out of the entire 17,997,273 share position it had held since Q4 2014, and once again Halvorsen's Viking Global, which sold a little more than 20% of its existing Netflix position (about 1.77 million shares).
What caused the Netflix exodus? I'd wager Netflix's first-quarter earnings report, released in mid-April. Though Netflix delivered another round of solid growth, including a gain of 6.74 million net memberships and a doubling of its EPS to $0.06 from the $0.03 that Wall Street had expected, its forecast of just 2 million net international additions was well short of the approximately 3.5 million net additions Wall Street had been looking for in the second quarter. For what it's worth, Netflix's Q2 report in mid-July missed the mark on what seemed to be reduced estimates, with only a net subscriber gain of 1.57 million internationally.
More than likely this is just another minor hiccup in Netflix's attempt to dominate streaming content, but it's certainly worth paying close attention to. Netflix's management team doesn't seem too concerned at the moment with its competition, and believes most of its near-term subscriber weakness can be blamed on passing higher prices along to tenured consumers of the brand. Though Netflix isn't cheap, it appears well supported by growth optimists.
Annaly Capital Management
Finally, you could say there was a minor billionaire stampede for the exit when it comes to mortgage real estate investment trust (mREIT) Annaly Capital Management (NYSE:NLY). David Shaw, who runs D.E. Shaw & Company, sold nearly 12.5 million shares of Annaly Capital Management, leaving the firm with just 3.75 million shares of Annaly at the end of the quarter. Simons' Renaissance Technologies also wound up dumping just shy of 3.1 million shares of Annaly, leaving nearly 10.7 million shares in its portfolio.
Why the dislike for Annaly in Q2? My guess would be that billionaire investors were expecting a rate hike. Mortgage REITs like Annaly earn their keep based on the difference between the rate at which they borrow money and the interest rate at which they earn money from investing in mortgage-backed securities. If interest rates are rising, it costs Annaly more to borrow, thus reducing its net interest margin and hampering its leverage.
While interest rates do seem poised to rise over the long run, the near- and intermediate-term future is quite cloudy. Inflation has remained low, U.S. GDP growth has been subpar, and the labor market has been choppy at times. We may have actually seen an overreaction of pessimism in Annaly's share price earlier this year, with the mREIT trading at just 95% of its book value and currently yielding a whopping 11%. Unless we were to see a number of successive rate hikes, Annaly could be quite attractive from the perspective of income investors.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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