Proposal of new hedge fund fee structure: 1% and 33% of alpha [Economonitor]
Cohen mulls plans to shutter SAC, open family office [Fox Business]
Is anyone any good at picking hedge fund managers? [The Big Picture]
Vanguard opposes petition to shorten deadline for 13F filings [ValueWalk]
How hedge funds transfer wealth from investors to managers [Forbes]
Asset managers yield to pressure on fees [Institutional Investor]
What's hurting hedge funds' performance? Their hedges (duh) [II Alpha]
Tiger Global invests $50 million in WordPress [Reuters]
Dan Loeb says Japan rally in early stages [WSJ]
Loeb's letter to Sony, arguing for a breakup [Dealbook]
Mortgages are investment du jour for hedge funds [Term Sheet]
Beware of that hedge fund in the window [Term Sheet]
Hedge funds to turn cold shoulder on advertising [Buzzfeed]
How Elliott and Hess settled a bitter proxy battle [Dealbook]
How New York hedge funds lost their shirts on Tesla [TheStreet]
Kerrisdale's Adrangi makes a killing by raiding the dodgy dealers [AFR]
Paul Tudor Jones: in macro trading, babies hurt a woman's focus [Washington Post]
Hedge fund and poker pros go heads up in Vegas [Hedge Fund Intelligence]
Friday, May 31, 2013
What We're Reading ~ Hedge Fund Links 5/31/13
Wednesday, May 29, 2013
Maverick Capital Exits Bluefly Stake; Clearlake Capital Buys 90% of Company
Lee Ainslie's hedge fund firm Maverick Capital filed an amended 13D and a Form 4 with the SEC regarding shares of Bluefly (BFLY). Per the filings, Maverick has sold out of its BFLY position and no longer owns any shares. On May 23rd, Maverick sold its 3,704,101 shares.
Bluefly just announced that Clearlake Capital Partners has purchased 90% of outstanding shares from the company's principal stockholders and also entered into an agreement with the company where they bought additional shares from the company. Clearlake is looking to re-energize the business.
Per Google Finance, Bluefly is "an online retailer of designer apparel brands and accessories at discount prices."
To see what US stocks Maverick has been buying, head to the just released issue of our premium newsletter.
Glenview Capital Sought Hart-Scott-Rodino Clearance To Buy More Health Management; Issues Press Release
Earlier this month, we highlighted how Larry Robbins' hedge fund firm Glenview Capital added to its Health Management Associates (HMA) stake and filed a 13D with the SEC. Yesterday, Glenview filed an amended 13D and included a press release seeking to clarify its holdings in HMA given that they sought Hart-Scott-Rodino clearance to buy more shares. The full press release is below:
"Statement of Clarification by Glenview Capital, 14.6% Shareholder of Health Management Associates, Inc.
NEW YORK, NY (May 28, 2013) – Glenview Capital Management LLC, issued the following statement of clarification regarding its holdings in Health Management Associates, Inc. (NYSE: HMA):
“Investment funds advised by our firm, Glenview Capital Management, LLC (“Glenview”), presently hold approximately 37.8 million shares of Health Management Associates, Inc. (“HMA”), or approximately 14.6% of the Company. In our thirteenth year of operation as an investment partnership, we at Glenview are proud of not only our investment track record but of our track record of dealing directly, respectfully and privately with senior management and, as appropriate, members of the Board of Directors. We have never filed a public letter to a company or its shareholders and our strong preference is to avoid doing so in the future.
However, we feel the 8-K issued by HMA in conjunction with the Board’s decision to enact a shareholder rights plan, commonly referred to as a poison pill, may cause confusion regarding our intentions and may lead to undue volatility in the stock price. As such, we offer the following points of clarification so that fellow shareholders may have a more complete understanding of the situation prior to the resumption of trading in HMA shares:
i) As a result of developments regarding HMA, Glenview converted its Schedule 13G filing to a 13D on May 6, 2013.
ii) Consistent with our 13D filing, we sought clearance, under the Hart-Scott-Rodino Antitrust Improvements Act (“HSR”), as required by law in order to be in a position to acquire even one additional share of HMA.
iii) Under HSR requirements, each investment fund within our fund family is required to make its own HSR filing. Each fund may file to acquire up to a maximum of $141.8 million, $709.1 million or a greater amount in HMA voting shares. Due to the size of our funds, and the proximity of their present ownership stake to the thresholds, three funds filed for the higher authorization size of up to $709.1 million and one filed for authorization of up to $141.8 million, thus adding up to $2.2 billion of stock.
iv) Notwithstanding the simple math of adding up these maximum threshold amounts, such an investment size is both beyond our present intention and beyond our present resources available for any single position. Such a filing was required to facilitate even a modest increase in our present holdings. In plain English, we have no present intention or future plan to buy either $2.2 billion of stock or 75% of HMA.
v) Finally, in HMA’s description of the adoption of the poison pill, they indicate that such a rights plan will “help promote the fair and equal treatment of all stockholders of the Corporation (not just Glenview)…” As perhaps this statement could lead to misinterpretation, we wish to clarify that Glenview has made no proposals, either to HMA or to any of its holdings over a thirteen year period, which are to the exclusive benefit of Glenview. On the contrary, every discussion we have engaged in, including any recommendations we have made, represent suggestions that we believe materially improve value creation for all long-term shareholders.
It is out of respect for our fellow HMA shareholders that we have made an exception to our long-standing practice of avoiding such open written communications, and we hope that this insight helps all market participants make intelligent decisions about their own investment positions in the Company. We look forward to continuing our discussions with HMA in private and will use the governance tools available (which for us always starts with respectful and constructive dialogue) to pursue our common objectives of long-term value creation.”
For more recent activity from this hedge fund, we also detailed how Glenview trimmed their Tenet Healthcare stake.
Scout Capital Discloses CST Brands (CST) Stake
Adam Weiss and James Crichton's hedge fund firm Scout Capital filed a 13G with the SEC regarding shares of CST Brands (CST). Per the filing, Scout has disclosed a 5.9% ownership stake in CST with 4,485,000 shares.
This is a brand new position for the hedge fund and Scout crossed the threshold requiring an SEC filing on May 15th.
This month CST was spun-off from Valero (VLO). Scout did not report ownership of VLO at the end of Q1, so it's hard to say if they bought VLO shares more recently and received shares via the spin, or if they simply built a position once CST started trading.
Shareholders of Valero on the books as of mid-April received 1 CST share for every 9 VLO shares owned.
Per Google Finance, CST Brands is "a retailer of transportation fuels and convenience goods in North America. As of April 30, 2013, the Company operated 1,032 Corner Stores throughout the United States, including Texas, Louisiana, Arkansas, Oklahoma, New Mexico, Colorado, Wyoming, Arizona and California. Its stores also provide prepared foods. The Company offers a range of products, such as snack foods, tobacco products, beverages and fresh foods, including its own brands: Fresh Choices sandwiches, salads and packaged goods; U Force energy drinks; Cibolo Mountain coffees (the United States); Transit Cafe coffee and bakery (Canada); FC bottled sodas, and Flavors 2 Go fountain sodas."
For more portfolio activity from this hedge fund, we recently posted about another stock Scout has been buying.
Lone Pine Capital Starts FleetCor Technologies (FLT) Position
Steve Mandel's hedge fund Lone Pine Capital filed a 13G with the SEC regarding shares of FleetCor Technologies (FLT). Per the filing, Lone Pine has revealed a 5.3% ownership stake in the company with 4,336,936 shares.
This is a brand new position for the hedge fund and the filing was required due to portfolio activity on May 15th. Just yesterday, we flagged another stock Lone Pine has been buying.
Other Hedge Funds Involved in FLT
FleetCor Technologies has garnered increased interest from tons of hedge funds, many of whom have ties to Julian Robertson's old Tiger Management in some form or another. Chase Coleman's Tiger Global was one of the largest FLT shareholders at the end of Q1.
Other top 10 institutional holders at the end of Q1 include Lee Ainslie's Maverick Capital and Robertson-seeded Hound Partners, managed by Jonathan Auerbach. While Tiger Global and Maverick own more shares, Hound has a much more concentrated position in FLT as it represents around 9% of their portfolio.
Lone Pine's recent activity, however, trumps all of these funds on an absolute share basis. Their 4.3 million FLT shares means they own even more than Tiger Global.
About FleetCor Technologies
Per Google Finance, FleetCor Technologies is "an independent global provider of fuel cards and workforce payment products and services to businesses, commercial fleets, major oil companies, petroleum marketers and government entities in countries throughout North America, Latin America and Europe. It provides its payment products and services in a variety of combinations to create customized payment solutions for its customers and partners. The Company operates in two segments: North American and International. The Company provides its customers with various card products that typically function like a charge card to purchase fuel, lodging, food and related products and services at participating locations."
To view the rest of Lone Pine's portfolio, head to the brand new issue of our Hedge Fund Wisdom newsletter that was just released.
What We're Reading ~ Analytical Links 5/29/13
Is the U.S. the next hot 'emerging market'? [WSJ]
Margin debt hits a record [WSJ]
The bull case on Hertz Global (HTZ) [Barron's]
TripAdvisor's (TRIP) margins could expand after years of slimming [Trefis]
On cutting your losses [The Atlantic]
Goldman Sachs says AIG shares still most loved by hedge funds [Marketwatch]
On share repurchase fever [Capital Observer]
What happens when QE ends [AllStarCharts]
Searching for yield [Mebane Faber]
If you only know 5 things about investing, make it these [Motley Fool]
Bid on lunch with Warren Buffett [eBay]
Activist investors: let's do it my way [The Economist]
Atlas of public stocks: mapping all publicly listed companies [Simoleon Sense]
Embrace the business model that threatens you [Harvard Business Review]
Behavioral investing principles are more relevant than ever [Institutional Investor]
PepsiCo (PEP) resistance against activists looks futile [Reuters]
A rush to recruit young analysts only months on the job [Dealbook]
Studying the dark art of leaking deal talks [Dealbook]
House flipping back in style [WSJ]
Tuesday, May 28, 2013
Strategist Jeff Saut on the Stock Market Buying Stampede
Checking in with market strategist Jeff Saut we see that his latest weekly market commentary is entitled 'Buying Stampede' due to all the questions he's received lately about the market.
Saut writes, "I continue to believe the SPX is going to trade north of 1700 into the end of 2Q13 before becoming vulnerable to a more significant decline beginning in the July/August timeframe. Obviously I have never seen a buying stampede like this one, which has lifted the senior index above a basing formation in the charts that was 13 years in the making."
He then notes that there have been four previous 'bases' that have launched secular bull markets that have lasted 12 years or longer (1906-1924, 1929-1955, 1966-1982, and then 2000-2013).
Saut cites a slidedeck of this data that says "The characteristics of the market when it breaks out of a base that exceeds 12 years in length is different. Investor behavior reflects an underlying distrust or disinterest and is characterized by underinvestment in equities. This results in a rebound that is relentless, providing little opportunity to buy on pullbacks." Sound familiar?
Embedded below are Saut's full analysis and comments:
You can download a .pdf copy here.
For more thoughts from this strategist, head to Jeff Saut on investor sentiment and you can also see his best stock ideas for the next 3-5 years that he outlined early this year.
Lone Pine Capital Raises Realogy Holdings (RLGY) Position
Steve Mandel's hedge fund firm Lone Pine Capital filed a 13G with the SEC regarding shares of Realogy Holdings (RLGY). Per the filing, Lone Pine has revealed a 5.1% ownership stake in Realogy with 7,457,505 shares.
This marks a 207% increase in Lone Pine's position size since the end of the first quarter. The 13G filing was required due to portfolio activity on May 14th.
Other Hedge Funds Involved in Realogy
Our premium newsletter last week highlighted how Blue Ridge Capital and Paulson & Co are also involved in this stock.
Hedgies seem to like Realogy as a play on the recovering US housing market and find the company's high margin (and low capital intensity) business model attractive as RLGY benefits from increased sale volumes and rising prices.
Per Google Finance, Realogy Holdings "through its subsidiaries, provides real estate and relocation services. The Company operates in four segments: Real Estate Franchise Services, Company Owned Real Estate Brokerage Services, Relocation Services and Title and Settlement Services. Through its Real Estate Franchise Services segment (RFG), is a franchisor of some of the most recognized brands in the real estate industry. Through its subsidiary, NRT LLC (NRT), it owns and operates a full-service real estate brokerage business in more than 35 of the metropolitan areas of the United States. Through its subsidiary, Cartus Corporation (Cartus), it is a provider of outsourced employee relocation services and the provider in the United States."
This hedge fund has been active lately as we detailed some of Lone Pine's other portfolio activity.
Nantahala Capital Boosts Stake in The Dolan Company (DM)
Wilmot Harkey's hedge fund firm Nantahala Capital Management has filed a 13G with the SEC regarding shares of The Dolan Company (DM). Per the filing, Nantahala has revealed a 11.52% ownership stake in Dolan with 3,562,282 shares.
This means their equity stake has roughly doubled. They previously owned just over 1.7 million shares at the end of March. The SEC filing was required due to portfolio activity on May 22nd.
Nantahala initiated a position in DM shares in the fourth quarter of 2012. Then they added to their position in the first quarter and have continued to buy as shares have fallen further.
About Nantahala
Nantahala focuses on small cap stocks and have a market-neutral discipline. Wil Harkey founded Nantahala in 2004. Prior to that, he worked at Sagamore Hill Capital.
About The Dolan Company
Per Google Finance, Dolan is "a provider of necessary professional services and business information to legal, financial and real estate sectors in the United States. The Company operates through two operating divisions: its Professional Services Division and its Business Information Division. Its Professional Services Division consists of two segments: mortgage default processing services and litigation support services. Its Business Information Division produces legal publications, business journals, court and commercial media, other online information products and services, and operates Websites and produces events for targeted professional audiences in 21 geographic markets across the United States. Its information is delivered through a variety of methods, including approximately 60 print publications and 80 Websites."
Wednesday, May 22, 2013
What We're Reading ~ Analytical Links 5/22/13
A lesson from Warren Buffett: doubt yourself [WSJ]
Jelisavcic: This is an optimal time to invest in distressed debt [FINalternatives]
Are corporate profit margins abnormally elevated or sustainable? [Greenbackd]
Don't just do something, sit there [The Economist]
Steve Romick: trade into the gold you can eat, farmland [Forbes]
Why investors can't imagine a collapse of the bond market [WSJ]
Telecom's big players hold back the future [NYTimes]
Investor sentiment: fear and greed index [CNNMoney]
Hedge fund leverage approaches all-time high [ai-CIO]
National Bank (NBHC) on the prowl [Barrons]
Why Alibaba could be China's next big IPO [Reuters]
Anatomy of the 10-K [Wall Street Oasis]
How the SEC's marketing rules shortchange investors [ii alpha]
Is the asset management business set for consolidation? [Citywire]
Warren Buffett is bullish on women [CNN Money]
If MBAs are useless, we're all in big trouble [Quartz]
Ron Johnson's 5 key mistakes at J.C. Penney [Fast Company]
Viking Global Increases Intuitive Surgical (ISRG) Position
Andreas Halvorsen's hedge fund firm Viking Global Investors has filed a 13G with the SEC regarding shares of Intuitive Surgical (ISRG). Per the filing, Viking has disclosed a 5.1% ownership stake in ISRG with 2,029,353 shares.
This marks around a 10% increase in the amount of shares they own since the end of the first quarter in March. This filing was required due to portfolio activity on May 10th.
Viking over doubled its stake in ISRG during the first quarter and it's now one of their largest holdings. Shares have fallen from $580 down to as low as $455 and currently trade around $485. As such, ISRG shares are likely trading at or even below levels where the hedge fund was buying.
To see what other US stocks Viking Global has invested in, check out the brand new issue of our Hedge Fund Wisdom newsletter that was just released yesterday.
Per Google Finance, Intuitive Surgical is "designs, manufactures and markets da Vinci Surgical Systems and related instruments and accessories. A da Vinci Surgical System consists of a surgeon’s console, a patient-side cart and a high performance vision system. The da Vinci Surgical System translates a surgeon’s natural hand movements, which are performed on instrument controls at a console, into corresponding micro-movements of instruments positioned inside the patient through small incisions, or ports. The da Vinci Surgical System is designed to provide its operating surgeon with intuitive control, range of motion, fine tissue manipulation capability and three dimensional (3-D), high-definition (HD) vision while simultaneously allowing the surgeon to work through the small ports of MIS."
For more resources on this fund, we've also posted up a rare interview with Andreas Halvorsen.
Tiger Global Boosts Carter's (CRI) Stake
Chase Coleman's hedge fund firm Tiger Global filed a 13G with the SEC regarding their position in Carter's (CRI). Per the filing, Tiger Global has revealed a 6.75% ownership stake in CRI with 4 million shares.
This marks a 36% increase in the amount of shares they own since the end of the first quarter. This latest disclosure comes due to portfolio activity on May 9th.
To see the rest of Tiger Global's recent portfolio, check out the brand new issue of our premium newsletter that just came out yesterday.
Per Google Finance, Carter's is "a branded marketer of apparel for babies and young children in the United States. The Company owns two brand names in the children’s apparel industry, Carter’s and OshKosh. Its Carter’s brand provides apparel for children sizes ranging from newborn to seven. OshKosh brand provides its line of apparel for children sizes newborn to 12. Its Carter’s, OshKosh, and related brands are sold to national department stores, chain and specialty stores and discount retailers."
Larry Robbins' Glenview Capital Trims Tenet Healthcare (THC) Stake
Larry Robbins' hedge fund firm Glenview Capital just filed a Form 4 with the SEC regarding shares of Tenet Healthcare (THC). Per the filing, Glenview sold 4 million shares of THC on May 14th at a price of $47.75.
After the transaction, Glenview still owns just over 9.8 million shares. This means they've reduced their position size by around 29% as the hedge fund has finally locked in some profits on the name.
Tenet a Big Winner For Glenview
THC shares have been a huge winner for Glenview and we originally highlighted Glenview's thesis on hospitals a year ago. That trade has performed extremely well, as THC is up over 120% since then.
As noted in our post on 2013 Q1 hedge fund performance, Glenview was up 17.94% at the end of the first quarter. And this comes on top of a big 2012 where they returned 29% before fees. Their basket bet on hospital stocks is a big reason why (and especially Tenet, their largest wager of the group).
And while Robbins' firm has sold some Tenet shares, we highlighted how Glenview recently added to another hospital play.
Per Google Finance, Tenet Healthcare is "an investor-owned health care services company whose subsidiaries and affiliates own and operate acute care hospitals, ambulatory surgery centers, diagnostic imaging centers and related health care facilities. Its core business is focused on providing acute care treatment, including inpatient care, intensive care, cardiac care, radiology services and emergency medical treatment, as well as outpatient services."
You can view the rest of Glenview's portfolio in our Hedge Fund Wisdom newsletter (new Q1 issue available now).
Tuesday, May 21, 2013
New Hedge Fund Wisdom Issue Now Available
The brand new first quarter issue of our premium Hedge Fund Wisdom newsletter is now available! Subscribers please login at www.hedgefundwisdom.com to download it.
In The New Issue
- Equity analysis of 3 stocks top hedge funds are buying:
Written by hedge fund analysts, this section quickly brings you up to speed on a company and the latest situation, summarizing the investment thesis. If
you missed it, we recently looked at the performance of stocks analyzed in past HFW issues and the numbers are pretty solid. See which 3 stocks are analyzed in the new issue by subscribing below!
- Brand new consensus buy/sell section: Top 5 new buys, top 5
sells, top 5 additions, top 5 reductions. Each list shows the most
popular stocks hedge funds were trading and provides commentary on why
they were
buying/selling.
- Newly updated portfolios of 25 top hedge funds: See the latest holdings of Seth Klarman, David Tepper, Steve Mandel, David Einhorn, John Paulson, Chase Coleman and many more big names.
- Expert commentary on each fund's moves: We put each fund's activity into context. We've been tracking these funds for 6+ years.
- 1 convenient document: All the important information aggregated to save you time.
See What Stocks Hedge Funds Have Been Buying, Subscribe Below
1-Year Subscription (save 20% with this choice): $299.99 per year
Quarterly Subscription: $89.99 per quarter
Want to pay by check? Email us: info@hedgefundwisdom.com
Monday, May 20, 2013
Omega Advisors and Bridger Capital Disclose Stakes in PennyMac Financial Services
Two hedge funds filed disclosures with the SEC today regarding shares of recently public PennyMac Financial Services (PFSI).
Omega Advisors' PFSI Stake
Lee Cooperman's hedge fund Omega Advisors filed a 13D with the SEC on PennyMac Financial Services (PFSI) revealing they own 21.6% of the company with 2,759,600 shares.
Omega purchased PFSI at $18 per share in the company's initial public offering on May 9th. Cooperman's firm also picked up a few extra shares on May 14th at $19.71 for some of their managed accounts.
For more from this hedge fund, Lee Cooperman recently shared his market thoughts at the Skybridge Alternatives Conference (SALT).
Bridger Capital's Position in PFSI
Roberto Mignone's hedge fund Bridger Capital also filed a 13G with the SEC and disclosed a 13.5% ownership stake in the company with 1,500,000 shares due to activity on May 9th as well.
About PennyMac Financial Services
PennyMac Financial Services recently went public and is the parent firm to publicly traded subsidiary PennyMac Mortgage Investment Trust (PMT).
Per Google Finance, PennyMac Financial Services, Inc. is "a specialty financial services firm with a mortgage platform and integrated business focused on the production and servicing of United States residential mortgage loans and the management of investments related to the United States residential mortgage market. The Company operates in two segments: mortgage banking and investment management. Its principal mortgage banking subsidiary, PennyMac Loan Services, LLC (PLS), is a non-bank producer and servicer of mortgage loans in the United States. PLS is a seller/servicer for the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac), each of which is a government-sponsored entity (GSE). The Company’s principal investment management subsidiary, PNMAC Capital Management, LLC (PCM), is an investment adviser. It manages PennyMac Mortgage Investment Trust (PMT), a mortgage real estate investment trust (REIT)."
Paulson & Co Adds to Dex Media Stake, Kyle Bass Discloses His DXM Position
John Paulson's hedge fund firm Paulson & Co filed an amended 13D and a Form 4 with the SEC regarding shares of Dex Media (DXM). Per the filings, Paulson has disclosed a 13% ownership stake in DXM with 2.23 million shares.
This marks an increase of around 19% in their position size, up from the 1.87 million shares they owned at the end of April. The new disclosure was required due to portfolio activity on May 14th.
Dex Media is the combination of the former Dex One (former ticker DEXO)
and Super Media (former ticker SPMD) entities. They recently merged and
reorganized. Paulson previously owned shares of both and as such received shares of the merged company.
Kyle Bass' Hayman Capital Discloses DXM Stake
Hedge fund Hayman Capital also owns a large stake in DXM and founder Kyle Bass presented the case on Dex Media at the recent Ira Sohn Conference.
Today we get a sense as to how big Bass' equity position is in the newly combined company. Per portfolio activity on April 30th, Bass' Hayman Capital filed a 13G with the SEC on Dex Media and revealed a 9.7% ownership stake in DXM with 1,664,636 shares.
Bass also previously held shares in both Dex One and SuperMedia and as such received shares in the newly combined entity, Dex Media.
Per Yahoo Finance, Dex Media "engages in the publication and marketing of directories, which include Yellow Pages and White Pages in the United States. The company also offers Internet-based telephone directory and database marketing services."
Soros Fund Adds to Johnson Services Stake
George Soros' family office Soros Fund Management has been gradually adding to its position in London listed Johnson Services Group (LON:JSG). Soros first disclosed the position in July of 2012, but since then they've nearly doubled it.
Soros Fund has revealed they own 7.19% of voting rights in Johnson Services Group as of May 9th. This is up from 5.68% in March and almost double from their original 3.87% position in July of 2012.
Per Google Finance – “Johnson Service Group PLC provides services to both consumers and businesses. The Company operates in four segments: Textile Rental, Facilities Management, Drycleaning and All Other Segments. Textile Rental consists of workwear rental supply and laundering, linen rental for the hotel, catering and corporate hospitality markets and sale of ancillary items. Facilities Management includes delivering building, facilities and property management services to public, commercial and retail organizations throughout the United Kingdom. Dry cleaning has over 460 stores nationwide, provides dry cleaning, laundry and ironing services, carpet cleaning and the supply of dry cleaning consumables and equipment. On February 14, 2012, SGP Property & Facilities Management Limited (SGP), its subsidiary, acquired specified contracts and assets of Nickleby & Co. Limited. In December 2012, the Company sold Alex Reid Limited (Alex Reid) to Christeyns UK Limited (Christeyns).”
For more on this investment manager, check out Soros Fund's new position.
Thursday, May 16, 2013
Performance of Stocks Analyzed in Past Hedge Fund Wisdom Issues
Most of you know that we publish a premium newsletter each quarter called Hedge Fund Wisdom (HFW). It reveals the portfolios of 25 top hedge funds, provides hedgie consensus buy/sell lists, and features an equity analysis section written by hedge fund analysts. (If you haven't seen it, check out a free sample here).
The brand new Q1 2013 issue of HFW will be released next week (May 21st), but in the mean time we wanted to update everyone on the performance of the stocks analyzed in past issues. (After all, the newsletter has been running for almost 3 years now).
Performance of Stocks From Past Issues
Each HFW issue features an equity analysis section and all numbers herein assume each stock was purchased when each issue of the newsletter was released and held until present day (5/15/13). The numbers are pretty solid. Here are some stats:
- 36 stocks profiled through all issues thus far
- 26 of these stocks have outperformed the S&P 500
- Average performance across all stocks profiled = +51.2%
- Average performance of S&P 500 = +28.5%
- Average outperformance over S&P 500 = +22.7%
- The 26 outperforming stocks beat the S&P by an average of +41.2%
- 4 stocks have more than doubled (+177%, +156%, +148%, +137%)
- 5 other stocks have each almost doubled (+97%, +92%, +91%, +87%, +84%)
- Only 10 stocks underperformed the S&P (and only 1 had a negative return: -3.1%)
Quarterly Breakdown of Performance
Here's a quarterly breakdown starting with the most recent issue and working backwards:
Q4 2012 Issue: 3 out of 3 Outperformed (February 2013 - Present)
Spirit AeroSystems (SPR): +32.3%
Herbalife (HLF): +18.5%
Capital One (COF): +15.0%
S&P 500: +9.8%
Q3 2012 Issue: 2 out of 2 Outperformed (November 2012 - Present)
Ocwen Financial (OCN): +24.4%
S&P 500: +19.3%
Q2 2012 Issue: 1 out of 3 Outperformed (August 2012 - Present)
VeriSign (VRSN): +2.9%
Textron (TXT): +2.5%
S&P 500: +17.4%
Q1 2012 Issue: 1 out of 3 Outperformed (May 2012 - Present)
AutoZone (AZO): +15.8%
TempurPedic (TPX) Short: Shares -0.82%, so performance = +0.82%
S&P 500: +25.9%
Q4 2011 Issue: 2 out of 2 Outperformed (February 2012 - Present)
United Rentals (URI): +44.3%Priceline.com (PCLN): +38.3%
S&P 500: +21.9%
Q3 2011 Issue: 3 out of 3 Outperformed (November 2011 - Present)
Visa (V): +91.0%
Lowe's (LOW): +87.1%
S&P 500: +31.3%
Q2 2011 Issue: 2 out of 3 Outperformed (August 2011 - Present)
Sensata Technologies (ST): +4.5%
First Solar (FSLR) Short: Shares -51.9%, so performance = +51.9%
S&P 500: +40.7%
Q1 2011 Issue: 3 out of 5 Outperformed (May 2011 - Present)
Seagate Technology (STX): +136.9%
Yahoo (YHOO): +65.2%
MetLife (MET): -3.08%
Best Buy (BBY) Short: Shares -18.3%, so performance = +18.3%
S&P 500: +24.0%
Q4 2010 Issue: 4 out of 4 Outperformed (February 2011 - Present)
Blackrock (BLK): +42.2%
Williams Companies (WMB): +36.1%
Coinstar (CSTR): +28.6%
S&P 500: +24.8%
Q3 2010 Issue: 4 out of 6 Outperformed (November 2010 - Present)
Aon (AON): +61.8%
CareFusion (CFN):+45.8%
Express Scripts (ESRX): +17.5%
Cisco Systems (CSCO): +5.3%
Alcon (ACL): Bought out
S&P 500: +38.3%
Q2 2010 Issue: 1 out of 3 Outperformed (August 2010 - Present)
Ensco (ESV): +40.9%
Citigroup (C): +32.3%
S&P 500: +53.7%
Sign Up For Next Week's New Issue
To see what stocks will be analyzed in next week's new issue of Hedge Fund Wisdom, click here to subscribe.
Disclaimer (as noted at the bottom of this website and in the newsletters): This information is for educational and/or entertainment purposes only. Use this information at your own risk. Market Folly and Hedge Fund Wisdom are not investment advisors of any kind, so do not consider anything on this page to be legal, tax, or investment advice.
Wednesday, May 15, 2013
What We're Reading ~ Analytical Links 5/15/13
Meb Faber's new book: Shareholder Yield [Meb Faber]
Explanation of Tepper's chart: Equity risk premium is high (this is bullish) [The Big Picture]
On confirmation bias and the perma-whatevers [Abnormal Returns]
The end is where we start from [Reformed Broker]
On emotional finance [Research Puzzle]
What record profit margins imply for future profitability and the market [Greenbackd]
It's time to fight the Fed [MicroFundy]
The low return of high yield [Contrarian Corner]
Missed Visa and Mastercard? Then keep an eye on this one: Fleetcor (FLT) [Old School Value]
The bull case on Hospira (HSP) [Forbes]
An overview of a hedge fund favorite: Dollar Tree (DLTR) [Aegaia Research]
Time to change the channel on media stocks [CNBC]
On the 'spying' Bloomberg terminals [CNBC]
Will Wall Street's Bloomberg terminal addiction break? [NYMag]
Steelmakers develop new iron recipes [WSJ]
Thoughts on a potential Verizon & Vodafone deal [VODVZ]
Two strategies: The Washington Post vs the NYTimes [Monday Note]
Forget gold, the gourmet cupcake market is crashing [WSJ]
Tuesday, May 14, 2013
David Tepper Still Bullish on Markets, Long Japan: Today's Interview
David Tepper appeared on Squawk Box this morning on CNBC. The once elusive Appaloosa Management hedge fund founder has now become somewhat of a sporadically recurring guest, each time popping in update his degree of bullishness.
Reasons For Tepper's Bullishness
He originally came on air in September 2010 and inspired the 'Tepper rally' in markets. The market is up almost 45% since Tepper's original bullish call and he said "sure, I'm definitely still bullish." He cited improvements in housing and autos as great reasons to be bullish in the US and also pointed to central banks around the globe that are easing. We highlighted Tepper's recent media appearance in January when he said to be long equities.
While many in the market are worried about the Federal Reserve tapering, Tepper shows how the deficit should be shrinking in the next six months and notes how there's $400 billion that can either go into the economy or stocks. "If we don't taper back, we're going to get into this hyperdrive market."
He went on to say, "There better be a true taper or else you might be back into the last half of 1999. So like guys that are short, they better have a shovel to get themselves out of the grave."
As far as potential risks go, Tepper says you always have to consider
potential problems arising in the Middle East that could cause a 5%
correction or so, but he doesn't see that coming and he also points that
North Korea has settled down a little bit.
In the end though, Tepper summarizes his thoughts by saying it feels like we're in an early stage economy.
Tepper on the Equity Risk Premium
Tepper highlights how "we're at one of the highs in equity risk premium in history" and that "when the equity risk premium is high, historically you get good returns after that. A chart he pulled up shows that the highest levels were in 1975, 1982 and now.
He also cited how there's a low 13-handle for the S&P on next year's earnings.
When asked where specifically he's bullish "I think every place is the place to be in the stock markets of the world. I think you've taken out the tail risk, the disaster case. That doesn't mean you won't potentially have riots in Europe."
Appaloosa Long Japan
Appaloosa is long Japan and has been long pretty much since the beginning of this year, Tepper said. They commented on how Dan Loeb of Third Point has approached Sony (SNE) about restructuring as well. Tepper noted that, "even though that market's moved a lot, you can still have a lot left in there."
Other Appaloosa Positioning
Tepper said, "It's one of those times where the indexes really are cheap ... My biggest position is Citi (C), you'll see it when my 13F comes out, it's still my biggest position. We don't own commodities, however if we still see a strong economy, as world growth picks up, commodities will pick up in 2014. General manufacturing is good, tech is cheap, but you have to be careful because of obsolescence" (so you have to look at individual names there).
He also said they still own Apple (AAPL), though they cut their stake a little bit at the beginning of the year around $500 or so. They bought just a little bit below $400, and he looks at it as part of his tech basket. Tepper feels the company either needs to come out with innovative new products, or transition to an evolutionary company where they make cheaper phones, bigger screens, and promote the ecosystem and grow that way. He says the problem is they haven't done either lately.
Embedded below is the video of David Tepper's interview:
Video 1
Video 2
Tepper was listed as the highest paid hedge fund manager of 2012.
Scout Capital Goes Activist on DineEquity, Raises Stake
Adam Weiss and James Crichton's hedge fund Scout Capital filed a 13D on shares of DineEquity (DIN) yesterday after market close. Per the filing, Scout has revealed a 6.6% ownership stake in with 1,280,321 shares.
This means they've boosted their position size by 134,631 shares since the end of 2012, or around a 12% increase. They filed the 13D due to activity on May 3rd.
Activist Stake in DineEquity
In the fine print of the filing, we see that Scout's purpose of transaction is listed as follows:
"The Reporting Persons have engaged and expect to continue to engage in discussions with senior management of the Issuer with respect to the Issuer’s optimal capital structure, debt refinancing, timing and magnitude of share repurchases, management compensation metrics and merger and acquisition strategies, among other matters."
Late last year, we flagged how Mick McGuire's activist fund Marcato Capital Management also filed a 13D on DineEquity.
Per Google Finance, DineEquity "owns franchise and operate two restaurant concepts: Applebee's Neighborhood Grill & Bar, (Applebee's), in the bar and grill segment of the casual dining category of the restaurant industry, and International House of Pancakes (IHOP), in the family dining category of the restaurant industry."
For additional moves from this hedge fund, head to recent portfolio activity from Scout Capital.
Paulson & Co Discloses Position in New Dex Media Entity
John Paulson's hedge fund Paulson & Co has filed a 13D with the SEC regarding the new entity of Dex Media (DXM). Per the filing, Paulson & Co has reported a 10.9% ownership stake with 1,878,927 shares.
Dex Media came to fruition via a merger of Dex One and SuperMedia, both positions Paulson was previously long. As a result, they received a stake in the new entity after reorganization.
Last week, we highlighted how Hayman Capital's Kyle Bass presented the bull case on Dex Media at this year's Ira Sohn Conference.
Per Yahoo Finance, Dex Media "engages in the publication and marketing of directories, which include Yellow Pages and White Pages in the United States. The company also offers Internet-based telephone directory and database marketing services."
Monday, May 13, 2013
Notes From the London Value Investor Conference 2013: Marks, Price, Montier & More
Today we're pleased to present notes from the 2013 London Value Investor Conference. The event features well known investors presenting investment ideas and insight in order to benefit children's charities The SMA Trust and Place2Be. Summaries of each presentation are linked below:
Notes From 2013 London Value Investor Conference
Howard Marks (Oaktree Capital): The sweet spot in corporate bonds
Michael Price (MFP Investors): On investment process & 2 long ideas
James Montier (GMO): Latest asset allocation model
Gary Harding (Winton Capital): Key value metrics to focus on
Anthony Bolton (Fidelity China Special Situations Fund): On investment process & China
Gary Channon (Phoenix Asset Management): Long Glaxosmithkline
Richard Oldfield (OldfieldPartners): Long Nokia & long Hitachi
Simon Denison-Smith (Metropolis Value Fund): Long Cisco Systems & J. Smart
Ian Lance & Nick Purves (RWC): Effectiveness of value investing today & 1 long idea
Jeremy Hosking: Long AIG & long US Airways
Richard Titherington (JP Morgan): Emerging market opportunities
Michael Price's Presentation at London Value Conference: Long Hospira & Hess
Continuing our notes from the London Value Investor Conference 2013, the next speaker is Michael Price of MFP Investors. He talked about his investment process and presented two long ideas: Hospira (HSP) and Hess (HES).
Price's Background
Michael Price first came to London as an investor in 1984. At the
time few people in Europe used a balance sheet focused value approach.
Many companies were not covered by an analyst at all and this
encouraged Price as the lack of coverage made him feel that he was
discovering new opportunities. Price said that this was the opposite
situation that you find at recent Berkshire Hathaway annual meetings
where 40,000 people focus on one company. He said to find opportunity
you need to get off the beaten track.
Price's Investment Process
Price
talked about his investment process. Two-thirds of his portfolio is
made up of stocks that trade below two-thirds of their intrinsic value.
The other third are special situations e.g., firms involved in proxy
fights, liquidations or a fight for control. From his 40 years of
experience, excluding 2008 - he said we all need to forget about 2008 -
that type of value portfolio will weather the storms.
What’s important
is to buy cheap and be well diversified with at least 30-70 holdings.
When you are convinced that what you already own is cheap compared to
comparable businesses you add to it. When you have done lots of work
and you gain conviction about an idea you can take the stake up to 3 to
5% of your portfolio. Your top five positions might each be 5% of your
portfolio. If you have conviction you should add to holdings as they
get cheaper. He values businesses by asking what a potential owner
would pay for the whole company.
Be prepared to wait patiently. If
there is nothing to do, sit with cash. Cash is ammunition. An investor
should spend all of his or her time working on calculating intrinsic
values waiting for the market to throw out an opportunity. The
definition of luck is preparation meeting opportunity.
Bad news creates
opportunity: wait for bankruptcies, the death of a control person who
owns a large part of the business, litigation, government intervention
and accidents. Always look at the companies whose share price is most
down to find value. Price said he also likes investing in companies
where management has built up intrinsic value and made mistakes.
In
terms of market valuation today, Price said the market was reasonably
priced but there are still some opportunities to find securities that
trade at two-thirds of their asset value.
Long: Hospira (HSP)
Idea:
Long Hospira (HSP:NYSE). Hospira had been a growth story until the FDA
shut down one of its largest plants. The share price went from $45 to
$28 overnight. The growth investors sold to the value investors. Price
thinks that the company will have completely recovered in two years.
Long: Hess (HES)
Idea:
Long Hess (HES) Hess is a case where the management have stumbled.
Hess is involved in a proxy fight with Paul Singer’s Elliott
Associates. It trades at a 50% discount. Price thinks there is likely to
be four or five new directors. The company with be divided into two
parts and share buybacks with be agreed. Assets will be sold off. John
Hess is likely to step down. The outcome of the vote is due on May 16.
It is also possible that Hess may get bought out.
Michael Price said he
also likes US banks (not European banks, though). He thinks Berkshire
Hathaway is 20% overvalued.
Book Recommendation
Michael Price highly
recommended a book about Peter Cundill’s investment approach by
Christopher Risso-Gill (2011) “There’s Always Something to Do: The Peter Cundill Investment Approach."
Be sure to check out other investor presentations: notes from the 2013 London Value Investor Conference.
Howard Marks' Presentation at London Value Conference on the Sweet Spot in Corporate Bonds
Continuing our notes from the London Value Investor Conference 2013, the next speaker is distressed investor Howard Marks of Oaktree Capital. He shared an outlook similar to what he's been writing. However, he did highlight where a lot of his portfolio has been allocated.
Marks is the author of one of the best investment books ever written, “The Most Important Thing". The book has recently been reissued as “The Most Important Thing Illuminated” with commentary by Seth Klarman, Joel Greenblatt, Christopher Davis and Paul Johnson, making the already outstanding volume even better.
Marks has done a lot of interviews and presentations recently. For those who have seen these and avidly read his regular memos there honestly was not a lot new in the London presentation. If you missed those, one of his last memos touched on how he thought equities were in stage 2 of a bull market.
One fascinating thing Marks alluded to in the Q&A, though, was that he views single b as the sweet spot in corporate bonds. He said “most bonds in my portfolio have been single b for years.”
We've also highlighted some of Oaktree's recent equity portfolio moves here.
Be sure to check out other investor presentations: notes from the 2013 London Value Investor Conference.
James Montier's Presentation at London Value Conference: GMO Now 50% in Cash
Continuing our notes from the London Value Investor Conference 2013, the next speaker is James Montier of GMO. He presented an update on their latest asset allocation model.
GMO Now 50% in Cash
James Montier said that GMO’s 7 year asset allocation model for US stocks is now predicting negative returns. GMO are now 50% in cash. While they've been known to hold higher levels of cash than most investors, this seems to be taking things a step further. They still hold some investments in Japan but he indicated that they are likely to be selling over the next couple of months.
He said that a year ago the model was indicating good returns in Europe but now it only suggests 2.5% real return per annum. He said that they are a bit frightened to follow the model in Europe because of the leverage at the company level, particularly in the financial sector.
Their model suggests that the best value is in emerging markets where 6% real is forecast. However, he mentioned that the research by his colleague, Edward Chancellor, which has identified an asset bubble in Chinese real estate, has made GMO cautious and led them to allocate less to EM than the model would suggest.
It is clear that at certain times GMO are prepared to overrule their quantitative asset allocation models when other evidence suggests caution.
Be sure to check out other investor presentations: notes from the 2013 London Value Investor Conference.
Anthony Bolton's Presentation at London Value Conference: On Investment Process & China
Continuing our notes from the London Value Investor Conference 2013, the next speaker is Anthony Bolton of Fidelity China Special Situations Fund. He talked about his investment process and gave thoughts on China, a market he thinks is set to rally.
Along with Neil Woodford, Anthony Bolton is probably one of the UK’s best known fund managers. Over a 28 year period from 1979 to 2007 Bolton returned 19.5% annualised managing the Fidelity Special Situations Fund.
He retired in 2007 and came out of retirement to run the Fidelity China Special Situations Fund in 2010. He is the author of a very good book on value investing “Investing against the Tide: Lessons from a life Running Money”.
Anthony Bolton was interviewed by David Shapiro. His answers fell into two broad categories: investment process and China.
Bolton on Investment Process
Bolton said that he had been influenced by many people over the years and that he had picked things up from here and there. He said “we are all plagiarists, what matters is how you mix it together.”
The two things that set Bolton apart from most other value investors are that he finds charting/ technical analysis useful and interviews with management are very important to him. Bolton said that he finds technical analysis gives a second view that is completely different and often more clear cut than fundamental analysis. When the technicals and the fundamentals line up Bolton said it gives him the conviction to make bigger bets.
When Bolton started visiting companies to interview managements in the 1970s it was unusual . He said that the interviews are a hugely central part of his process, even in China today. The only thing that he regards as more important is the dynamics of the business model.
Not being able to speak the language has not diminished the usefulness of the interviews. He said that he is used to having to work with translators in both Europe and China. Two-thirds of his interviews are currently carried out in Mandarin.
Having done a lot of interviews over the years, Bolton said that he has developed a feel for CEOs “who have it”. He looks for managers that can talk strategically and financially. What he does not like is a CEO who cannot talk about the financials well. He has found that to be dangerous trait.
Bolton regards the second interview with a company’s management as particularly important as it provides test of whether they say the same things or not. Bolton mentioned a number of characteristics of businesses that can provide him with investment opportunities. He likes companies that have a possible M&A angle. He looks for a discount to asset value. He looks for unrecognised growth. Changing businesses can create opportunities.
Generally he has not liked manufacturing and prefers cash generative rather than capital intensive businesses. Bolton says he has always tried to know more about the companies he is investing in than anyone else. It is only when he feels that he understands a situation really well that he is prepared to make a large bet. Bolton said that he makes a point of exploring what went wrong after he has made a bad investment. What he has found by looking at his mistakes over the years is that they mainly have two causes: a poor business model or too much debt.
On China
Bolton’s China fund has struggled since its inception in 2010. It was clear from his comments that his extensive experience in UK and European special situations had not prepared him for what he encountered in China. He said that the reverse merger Chinese companies listed in the US were the worst group he had ever seen. He estimated that about 80% were frauds.
Bolton lost some money in US reverse merger companies but he is now out of them. He warned that it is better to invest in companies in mainland China than those list on AIM or in the US. He prefers to invest in Chinese private companies rather than state owned enterprises.
Chinese official statistics are sometimes manipulated. Bolton said that you have to look at a range of figures like freight volumes and electricity generation to double check. He thinks that the road to social reform over the next ten years will be difficult for the Chinese. In the short term of a year or so he is expecting a big move up in Chinese equities.
Be sure to check out other investor presentations: notes from the 2013 London Value Investor Conference.
Richard Oldfield's Presentation at London Value Conference: Long Nokia & Hitachi
Continuing our notes from the London Value Investor Conference 2013, the next speaker is Richard Oldfield of Oldfield Partners. He presented two long ideas: Nokia (NOK) and Hitachi.
Oldfield made some interesting comments about asset allocation. He said that his many years of experience have taught him that wholesale, large moves in a portfolio are usually disastrous. He recommended moving slowly. Investors are better to take marginal, incremental step as there is less chance of being wrong for emotional reasons.
Idea: Long Nokia
Oldfield said that Nokia was a great value but that they had got the entry price wrong. He noted the value in Navteq mapping, the half stake in NSM and intellectual property and patents. He said that the Lumia phones are very good and that capitulation for the stock is close at hand.
Idea: Long Hitachi
There has been a real change in style of Hitachi’s management. In particular it has become much more target orientated. It has become globally aware for the first time. It has a successful nuclear power venture. He noted that if Hitachi can be turned around then anything in Japan can. He said that there are many Japanese sleeping monsters with great potential. Last week we highlighted how investors are the Sohn Conference were bullish on Japanese stocks.
Be sure to check out other investor presentations: notes from the 2013 London Value Investor Conference.
David Harding's Presentation at London Value Conference: Key Value Metrics to Focus On
Continuing our notes from the London Value Investor Conference 2013, the next speaker is David Harding of Winton Capital. He presented a background of his firm's strategy and touched on what important value metrics investors should focus on.
Winton Capital is one of Europe’s largest hedge fund managers with $25bn AUM. It primarily uses a trend following/ momentum, quantitative approach across many asset classes so at first sight Harding was an odd guest at a value conference.
After reading Joel Greenblatt’s Little Book That Beats the Market, Harding became interested in utilising value in a systematic way. He said that Winton’s research findings echoed Greenblatt’s research finding a real edge using quantitative value. Winton do incorporate a value approach into some of their trading, although it did sound as if it was a side show compared to their main trend following approach.
The key value metrics that Harding discussed were return on assets and earnings yield. He noted that results could be significantly improved by equal weighting stocks rather than using capitalisation weighting.
Be sure to check out other investor presentations: notes from the 2013 London Value Investor Conference.
Gary Channon's Presentation at London Value Conference: Long Glaxosmithkline
Continuing our notes from the London Value Investor Conference 2013, the next speaker is Gary Channon of Phoenix Asset Management. He talked about portfolio construction and presented a long idea: Glaxosmithkline (LON:GSK).
Channon's Investment Approach
Gary Channon is strongly influence by Warren Buffett and Phil Fisher. Phoenix is long-term, focused, looking for great businesses run by shareholder aligned managers, companies with strong pricing power, generating a high returns on capital. In short, they look for long-term greats.
The Phoenix portfolio usually has around 15 stocks with the top 5 making up >60%. All the stocks are UK listed. They carry out detailed research with extensive fieldwork and monitoring. Since inception in 1998 Phoenix has returned 9.6% net annualised or 290% in total. On a total return basis the UK market has returned 4.6% per annum during the same time period. Phoenix have a high win/ lose ratio with 78% winners against 22% losers.
Channon talked about “Finding Opportunities in Flawed Heuristics”. A heuristic is a mental shortcut that allows people to solve problems and make judgements quickly and efficiently. Channon argued that investment heuristics like P/Es, price to book and EBIT lead investors to oversimplify and misunderstand companies. At times these commonly used heuristics fail to identify stocks that are really cheap creating opportunities for informed value investors.
Channon used the homebuilder, Barratt, as an example of how heuristics can fail. Historic cost accounting creates a distorted picture of homebuilders in a rapidly rising or falling housing market. The financial crisis wiped out IFRS earnings and made book value different from cost or market value. No earnings and an unfathomable book value left the market without its usual heuristics of P/ E and P/BV which in turn led to the stock becoming cheap.
Long Idea: Glaxosmithkline (LON: GSK)
Channon noted that the orthodox view of big pharma is that pricing power is being lost due to patents expiring and therefore companies deserve to trade on a lower multiple than they did in years gone by. Channon argued that this was a faulty heuristic.
Phoenix’s research on the pharmaceutical industry indicates that the pharma industry is not prone to creative destruction with open competition leading to lower prices, rationalisations and bankruptcy. Instead Channon painted a picture of pharma as being a cosseted sector, with high profitability, little cut throat competition and little change. The time horizons in pharmaceuticals are very long. All the big companies are at least 90 years old. It is hard for new companies to break into the large pharma sector. New products take 10-12 years to develop. Companies tend to keep a stable market share over time.
Glaxo has kept a steady market share at 5% for 30 years. You get stability and high returns due to industrial scale, not new drug development. Channon argued that patents are irrelevant to the long- term investor. National health care spending is much more predictive of profitability than the drug pipeline. Health care spending tends to go up over time as a proportion of GDP.
Channon likes the Glaxo management particularly the CEO Andrew Witty. He believes that Witty has successfully changed the culture with the company becoming genuinely socially responsible. For example, Glaxo is working with the Bill and Melinda Gates foundation, they are open with their drug test data and they are making some drugs available for free in poorer countries.
Book Recommendation
Alfred Chandler’s Shaping the Industrial Century – Channon said the book is a great introduction to the chemical and pharmaceutical industries.
Be sure to check out other investor presentations: notes from the 2013 London Value Investor Conference.
Simon Denison-Smith's Presentation at London Value Conference: Long Cisco Systems & J. Smart
Continuing our notes from the London Value Investor Conference 2013, the next speaker is Simon Denison-Smith of Metropolis Value Fund. He talked about his investment strategy and presented the long ideas of Cisco Systems (CSCO) and J. Smart.
Metropolis' Strategy
Denison-Smith’s investment strategy draws extensively on his experience of building and running businesses. He has extensive experience of private company buyouts. Since inception in 2008 Metropolis Valuefund has returned 12% per annum.
He likes to buy unloved companies but he noted it was difficult to execute the strategy consistently for a number of reasons. You need to be able hold your conviction when the market is selling off hard. You need to be able to treat volatility as risk. It helps to think of investments as a fractional stakes in a business. Avoid anchoring to an investment thesis as the facts change. Avoid over- diversifying, 10-20 stocks are enough. You have to be able to cope with periods of inactivity.
Metropolis apply an entrepreneurial and private equity approach to long only investing. They screen for cheap businesses and rule out most candidates using criteria such as sector, pension liability, clarity of business and unfavourable ownership structure. They spend most of their time assessing the quality of businesses carrying out analysis of multiple years of accounts, broker reports, web based research, modelling cashflow and identifying risks. The favour the sum of discounted future cashflows as a measure of value.
Denison-smith said that trying to fully understanding the bear case is an important part of their process. As Chalie Munger says, always invert.
Idea: Long Cisco (CSCO)
Since 1999 EPS has grown 13% pa. PE has fallen from a peak of 300x to 11-12x. EBITA margins have remained within the range of 26-34%. It consistently generates positive operating cashflow after interest and tax. Cashflow is consistently higher than reported profits. Today Cisco’s post tax cashflow is only costs 7x. Free cashflow yield is 14%. Cisco has a moat in terms of scale, brands and high switching costs. Denison-Smith noted that Cisco’s reputation for producing routers and switches that are the safe and reliable option was particularly important. The most significant threat to Cisco is that disruptive technology (SDN) and increased competition, particularly from Huawei, will impact their high gross margins.
Idea: Long J. Smart (SMJ: LON)
Denison-Smith billed J. Smart as an idea for personal accounts. J. Smart develop residential and commercial property in Edinburgh. They also provide a range of construction services for external and internal use. It is a family management team with 50% ownership and it is not covered by any analysts. They are buying back shares and there is a dividend of 4%. The shares are illiquid. It’s cheap in balance sheet and cashflow terms. The discount of enterprise value to net tangible book value less cash is 65-70%. EV: post tax FCF of 7-8x. FCF yield of 12-14%.
Be sure to check out other investor presentations: notes from the 2013 London Value Investor Conference.
Ian Lance & Nick Purves' Presentation at London Value Conference: Long Pfizer (PFE)
Continuing our notes from the London Value Investor Conference 2013, the next speakers were Ian Lance and Nick Purves of RWC. They presented the case for why value investing is hard in this market and one long idea: Pfizer (PFE).
Effectiveness of Value Investing in Today's Market
With the AUM of large value funds dwindling from its peak, Lance and Purves suggested that it was time for a little humility and introspection amongst value investors. They argued that the pace of technological change meant that value investors were often not well equipped to invest in technology companies as they tend to fixate on the accounts.
Another factor undermining the effectiveness of value investing in today’s market is that stock prices do not mean revert as much as they used to. This means that doubling down on investments is more risky. They speculated that globalisation prevents mean reversion and they gave the example of the pressure that large US car makers have been put under by global competition.
They pointed out that the last 30 years have been very generous to investors and that the next 30 years may not be so kind. Were the last 30 years normal? Could the next 30 years be different? Has anything changed permanently?
- The discount rate has fallen dramatically
- Government deficit spending has been high
- Household savings have fallen
- Corporate profitability is at record levels
- The aggressive actions of central banks have supported markets
Looking forward they feel the last 30 years was abnormal. The future could well be harsher. We should look out for corporate lifecycles getting shorter. Investing in low valuation stocks may not work so well. We will need to be more selective about our investments. Sustainability of cash flow will be very important.
Long Idea: Pfizer (PFE)
High ROCE, shareholder friendly management, cost reductions of $5bn p.a delivered over the last 3 years. Share buybacks $18bn since 2010. Improving pipeline. P/E 13x, dividend yield 3%.
Be sure to check out other investor presentations: notes from the 2013 London Value Investor Conference.
Jeremy Hosking's Presentation at London Value Conference: Long AIG & US Airways
Continuing our notes from the London Value Investor Conference 2013, the next speaker is Jeremy Hosking, an entrepreneur and fund manager. He presented the long case on both AIG (AIG) and US Airways (LCC).
On Opportunities in Markets
The theme of Jeremy Hosking's presentation was how the money management industry can produce opportunities for value investors. There is a limited amount of opportunity in markets and we are all fighting over it, Hosking said. It helps to have someone making opportunity at the poker table and that is a role often played by institutional asset managers. Institutional funds cause:
- Agent principal damage via high fees
- Diseconomies of scale. The bigger the pool of assets the harder to outperform
- Product proliferation (often at the top of the market)
- Herding by fund managers is a disservice to the client
Herding by fund managers takes many forms: short termism, inside asset classes (“better to fail conventionally”), volatility avoidance, excessive information processing, preference for high liquidity stocks, too much investment in mega cap stocks, high fees.
And while Hosking talked about herding, it is slightly ironic that he then went on to pitch AIG. While the bull case on the company makes sense, it is held by many prominent US hedge funds as a top long and could be considered a 'herding' pick in and of itself. But to be fair, perhaps it's not a consensus long over in the UK.
Idea: Long AIG (AIG: NYSE)
Cheap at 0.6x book. Cyclical improvement in underwriting. Sale of non-core assets nearly always helps the share price. $5bn per annum in share buybacks. 30% reduction in share count between 2011-15. Use of data mining/ analytics will improve product mix and growth rate.
Idea: Long US Airways (LCC: NYSE)
Industrial consolidation leaves US Airways as one of the big three. Operating cost compression reinforces oligopoly. Shares to merge into New American on 1-for-1 basis Q3 2013. Post merger EBITDAR of $8.3bn produces EV target of $50bn (6x multiple) or $50 per share target after net debt.
Be sure to check out other investor presentations: notes from the 2013 London Value Investor Conference.
Richard Titherington's Presentation at London Value Conference: Emerging Market Opportunities
Continuing our notes from the London Value Investor Conference 2013, the next speaker is Richard Titherington of JP Morgan. He presented on which emerging markets were the most compelling as investments these days.
Emerging Markets Opportunities
Richard Titherington is the Head of the JP Morgan Emerging Markets Equity Team based in London. In terms of price to book General Emerging Markets (GEM) is cheap but not at crisis levels. Because corporate governance is shareholder unfriendly in many emerging markets, GEM may not actually be that cheap. For example, many Indian and South Korean companies do not pay dividends.
Titherington likes China, Korea and Russia. He said that China is in the sweet spot, having both good value and momentum. His main message was to buy what is cheap and unpopular and to sell what is expensive and popular. Thailand and Indonesia are particularly expensive whilst Chinese financials offer significant value.
Be sure to check out other investor presentations: notes from the 2013 London Value Investor Conference.
