Hedge funds stay defensive, up bets on healthcare

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The 10 largest U.S. hedge funds moved out of China amid recession fears and snapped up more healthcare and pharmaceutical stocks than any other industry in the second quarter, spending $7.2 billion on the sector, new data finds.

Baxter International, the maker of hospital supplies was the most sought-after stock, boosting the overall popularity of the sector after Dan Loeb's Third Point invested $1.9 billion in the firm, making up some 18 percent of his portfolio, according to data compiled by S&P Capital IQ. Activist investor Loeb has also set his sights on two board seats and a say in the hunt for a new chief executive at Baxter International.

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Other notable healthcare buys were in pharmaceutical companies Valeant and Abbvie, which quit talks with London-listed firm Shire last year, abandoning what could have a $54 billion deal. Both groups were ranked in the top 10 buys, in terms of money invested, the research found.

Healthcare was also the preferred sector in the first three months of the year, but has seen its popularity increase, with the largest hedge funds spending $2.4 billion more on medical and pharmaceutical stocks in the second quarter compared to the first.

Meanwhile, information and technology stocks were firmly out of favor, with a $3.1 billion sell-off. This trend has also picked up pace from the first quarter, where funds ditched $942 million of info tech stocks.

China's Baidu was the quarter's most-sold stock, losing $1.3 billion of the largest hedge fund's cash. Stephen Mandel's Lone Pine sold out of the stock entirely, and also ditched $874 million in Apple stock.

"There is a lot of negative sentiment towards China. Baidu is interesting because it was one the dark horses and favourite stocks when we first started doing this report nearly two years ago, but now it is completely role reversal and the momentum seems to be negative side of things," director of market development at S&P Capital IQ, Pavle Sabic told CNBC.

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S&P Capital IQ analysed the latest 13F Securities and Exchange Commission filings to determine the largest hedge funds based on reported equity assets. The company looked at hedge funds that have a 100 or fewer positions in order to focus on the biggest bets and overweight positions and no short positions were taken into consideration.

Icahn Capital is listed as the largest hedge fund in the U.S. in the S&P report, with $27 .6 billion in assets under management.

Viking Global Investors, managed by Andrea Halvorsen came in second with $26.5 billion. Halvorsen had an active second quarter, upping his stake in Valeant by $124 million and also splashed out a hefty $952 million in Amazon, the data showed.