Inaya Mclaughlin
Hedge funds pool investors' money to make large investments in securities or other asset classes. They are generally exclusive to wealthy investors and institutional investors, such as pension funds. During the early days of the COVID-19 pandemic, hedge funds invested in companies that would benefit from social quarantines and lockdowns, such as Amazon, Microsoft, and Charter Communications. As of 2020, hedge funds were also investing in healthcare stocks, biotech companies, and pharmaceuticals. As of 2024, hedge funds are investing mostly in technology, services, financials, healthcare, and consumer goods.
What You'll Learn
Tech stocks
The appeal of tech stocks to hedge funds is evident in the "Magnificent 7," which includes prominent names like Apple and Amazon. These stocks witnessed intense crowding by hedge funds, indicating their popularity. However, by November 2023, hedge funds began to sell U.S. tech and media stocks, signalling a potential shift in sentiment.
While hedge funds have shown a strong interest in tech stocks, it's important to note that their investments are not limited to this sector. They also explore other sectors and employ complex risk management strategies to navigate the competitive marketplace.
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Biotech companies
Biotechnology is one of the hottest sectors at the moment. The coronavirus pandemic was the greatest stimulus for the industry, as it was solely responsible for bailing humanity out of the crisis. The industry is also responsible for countless other innovations, such as the production of insulin.
Biotechnology is the use of biological raw materials to make vaccines and other products. This is in sharp contrast to traditional pharmaceutical applications that use plants and other raw materials to make medicines.
- Merck & Co., Inc. (NYSE:MRK)
- Johnson & Johnson (NYSE:JNJ)
- AbbVie Inc. (NYSE:ABBV)
- Seagen Inc. (NASDAQ:SGEN)
- United Therapeutics Corporation (NASDAQ:UTHR)
- Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN)
- BioMarin Pharmaceutical Inc. (NASDAQ:BMRN)
- Amgen Inc. (NASDAQ:AMGN)
- IQVIA Holdings Inc. (NYSE:IQV)
- Gilead Sciences, Inc. (NASDAQ:GILD)
- Biogen Inc. (NASDAQ:BIIB)
- Bristol-Myers Squibb Company (NYSE:BMY)
- Vertex Pharmaceuticals, Inc. (VRTX)
- Halozyme Therapeutics, Inc. (HALO)
- Incyte Corporation (INCY)
- Exelixis, Inc. (EXEL)
- Mimedx Group, Inc. (MDXG)
- Bio-Techne Corp (TECH)
- Jazz Pharmaceuticals PLC (JAZZ)
- Moderna, Inc. (NASDAQ:MRNA)
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Pharmaceuticals
The global pharmaceutical industry is growing, presenting attractive opportunities for investors. The industry is valued at around $1.6 trillion and is expected to continue growing, driven by factors such as an ageing population, the higher prevalence of chronic diseases, and increased access to healthcare worldwide.
Hedge funds are investing in pharmaceutical stocks as a defensive strategy to weather economic uncertainty. Pharmaceutical companies are also attractive to investors due to the consistent demand for their products, making them a relatively stable investment choice.
Some of the most undervalued pharmaceutical stocks that hedge funds are investing in include:
- Pfizer Inc. (NYSE:PFE)
- Bausch Health Companies Inc. (NYSE:BHC)
- Moderna, Inc. (NASDAQ:MRNA)
- Cullinan Oncology, Inc. (NASDAQ:CGEM)
- ITeos Therapeutics, Inc. (NASDAQ:ITOS)
- Innoviva, Inc. (NASDAQ:INVA)
- Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD)
- Immatics N.V. (NASDAQ:IMTX)
- Novartis AG (NYSE:NVS)
- Syneos Health, Inc. (NASDAQ:SYNH)
Additionally, hedge funds are investing in pharmaceutical exchange-traded funds (ETFs) to gain exposure to a basket of pharmaceutical stocks and related companies. The top three pharmaceutical ETFs by one-year trailing total returns are:
- VanEck Pharmaceutical ETF (PPH)
- IShares U.S. Pharmaceuticals ETF (IHE)
- Invesco Dynamic Pharmaceuticals ETF (PJP)
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Cloud computing
Cost Savings and Scalability
Hedge funds can benefit from significant cost savings by adopting cloud computing. Instead of purchasing costly infrastructure and building their own communications rooms, funds can outsource to a third-party provider and manage their data and applications through a simple web address. This is particularly advantageous for start-ups that typically have limited upfront capital to invest in their own infrastructure or IT staff. Cloud computing also offers scalability, allowing funds to pay for only the resources and capabilities they need. This pay-as-you-go model provides flexibility and enables funds to scale up or down based on their business requirements.
Speed and Efficiency
Security and Compliance
While security and compliance have been concerns for hedge funds considering cloud adoption, cloud providers offer robust security measures. Private clouds, in particular, provide an isolated and highly secure environment with greater control over network traffic, data security, and compliance. Additionally, cloud providers offer advanced security features such as multi-factor authentication and targeted attack protection, ensuring data protection and compliance with regulatory requirements.
Disaster Recovery and Business Continuity
Applications and Functionality
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Cable TV
The cable television industry has traditionally relied on a
Despite these challenges, hedge funds continue to invest in cable TV companies, particularly those that produce popular content. Comcast, for instance, is the largest cable operator in the country and has expanded its content offerings through its acquisition of NBCUniversal. Comcast also offers high-speed internet services, which have become increasingly important as more people stream television shows and movies online.
Time Warner, another major player in the cable TV industry, has focused on providing compelling content through networks like CNN, Turner Broadcasting, and HBO. The company has also invested in streaming services, launching a standalone HBO streaming platform.
Charter Communications, another cable and internet service provider, has also been a popular investment choice for hedge funds. The company's Spectrum TV, Spectrum Internet, and Spectrum Voice services offer a range of entertainment and communication options for customers.
While the cable TV industry faces competition from online streaming services, hedge funds recognize the value of investing in companies that produce high-quality content. As Morningstar analyst Neil Macker writes, "Quality content will always find an outlet," whether it's through cable packages or online streaming platforms.
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Frequently asked questions
Hedge funds pool money from wealthy investors to invest in securities or other types of investments with the goal of getting positive returns.
During the coronavirus pandemic, hedge funds invested in companies that would benefit from social quarantines and lockdowns, such as Amazon, Microsoft, and Charter Communications. As of 2020, hedge funds were also investing in healthcare stocks, energy stocks, and financial stocks.
Event-driven investing is an investment strategy where investors buy stocks based on the prospect of a big move higher, driven by a specific catalyst. These events could include the approval of a drug by the Food and Drug Administration, the sale of a company, or a spinoff of a company's business.
One example of event-driven investing is investing in Gilat Satellite Networks (GILT) due to the expected demand for satellite communications in the rollout of 5G technology. Another example is investing in Acorda Therapeutics (ACOR), a biotech company that could see growth from the development of treatments for central nervous system disorders.
