When billionaires speak, investors tend to listen; thus you can imagine the excitement on Wall Street when form 13F filings with the Securities and Exchange Commission began hitting the news in mid-May.
Form 13Fs give us an intricate look at what the biggest and most successful money managers in the world are doing with their, and investors', money. While not perfect -- 13Fs don't require short positions be divulged, and we are getting a look at data that's a minimum of 45 days old -- these filings can give us valuable insight as to what stocks are piquing the interest of billionaires.
Although attention often turns to what billionaires are buying, we should also keep a close eye on what they're selling, because those trades can be just as telling. Last week we looked at a few widely held companies that billionaires kicked to the curb completely during the first quarter. Today, we'll look at three widely held stocks that billionaires substantially reduced their holdings in during the first quarter.
Interestingly enough, gold was a popular investment during the first quarter. After touching $1,050 an ounce, physical gold delivered its most robust quarter of gains in 30 years, pushing mining stocks to a huge outperformance compared to the broader market indexes. That, however, didn't stop John Paulson of Paulson & Co., often a big supporter of gold, from shedding 7.67 million shares of AngloGold Ashanti (AU 2.71%) to bring his fund's position to 15.22 million shares.
If gold prices are rising, why sell AngloGold Ashanti? If I had to venture a guess, it'd be that the cost-cutting dynamics in other regions of the world are simply working better. AngloGold operates some of its mine in Africa, and African gold miners regularly struggle with labor disputes and the threat of political instability in African nations. The result is that even with a reduced forecast calling for all-in sustaining costs of just $900-$960 an ounce in 2016, its AISC is still higher than that of many of its peers. This would imply that AngloGold's margins probably aren't going to be as good as its peers.
To be clear, this doesn't mean AngloGold isn't due its recently rally, but investors will want to be mindful of mining costs when assigning premiums to gold miners.
Billionaire George Soros also made a mind-numbing number of trades in his flagship Soros Fund Management. Though he sold quite a few positions off completely, one big name he lightened his load of quite significantly was drug developer Allergan (AGN).
Soros' fund wound up dumping 60% of its Allergan holdings, or 222,113 shares, leaving just $38.4 million worth of Allergan in the portfolio at the end of Q1. Keep in mind that Soros wisely (or luckily) dumped 60% of his shares before the merger between Allergan and Pfizer (PFE -0.23%) was thwarted by the U.S. Treasury Departments' new rules on tax inversions. Pfizer had been aiming to redomicile its headquarters overseas to reap the rewards of Ireland's lower corporate tax environment, but new regulations set forth by the U.S. Treasury adversely impacted serial inverters like Allergan, making a tax inversion impossible.
So why sell Allergan? Perhaps Soros foresaw eventual problems with the now-dead merger with Pfizer, or it could just simply be that he's beginning to take an overall bearish view of the U.S. economy as a whole (he was an active buyer of put positions in the S&P 500's tracking index). Soros wound up cutting his investments in U.S. stocks by 37% during the quarter.
Also, Allergan has grown in recent years through acquisitions, so perhaps Soros felt it wise to retreat to the sidelines and let Allergan prove that it's got more to offer than just Botox. Soros' Fund has also been a shareholder of Allergan since Q4 2013, so profit-taking isn't out of the question, either.
For what it's worth, I believe Allergan looks quite inexpensive following its recent slide, and would encourage investors with a higher appetite for risk to give it a closer look. Allergan's developing biosimilar portfolio could be a nice surprise for patient investors.
Finally, billionaire Dan Loeb of Third Point got in on the selling action as well, dumping 6.04 million shares of biotech blue-chip Amgen (AMGN 0.93%), leaving his fund with just 3 million shares as of the end of the quarter. Though still representing 4.14% of Third Point's portfolio, it had represented nearly 15% in the previous 13F filing through Dec. 31, 2015.
Loeb originally took a position in Amgen during the second-quarter of 2014 with the intention of pressing Amgen to consider a break-up into two separate companies: one that contains its mature products, and one focused on developing pipeline products. Loeb's contention in Oct. 2014 was that a split could boost shareholder value by 80%, even when taking into account the tax liability and costs associated with splitting into two businesses.
As we now know, Amgen decided not to pursue the split. Instead, it's reduced its costs by more than $1 billion annually by laying off 4,000 workers and closing a handful of research and development facilities. It's also brought a half-dozen new therapies to market since Dec. 2014, and announced ongoing improvements to its shareholder return policy with its rapidly growing dividend and steady share buybacks. It's tough to say what Third Point's cost basis is with Amgen, but based on its average price in Q2 2014, Loeb has probably netted somewhere around 40% on his investment, not counting dividends. That's a fair return in just two years, and Loeb may have decided to take some of his chips off the table.
However, like Allergan I believe Amgen could be just clearing its throat for another growth phase. If recently approved PCSK9 inhibitor Repatha demonstrates superiority over the placebo in cardiovascular function vis-à-vis LDL-cholesterol reduction, then this injectable drug could potentially fuel Amgen's future growth prospects in a big way.