While many hedge funds have underperformed the stock market this year, a handful – especially those focused on fundamental stock-picking – have handily beaten their hedge fund peers.
|| Viking Capital's Andreas Halvorsen|
Photo credit: (Bloomberg)
Among them is Andreas Halvorsen’s Viking Global Equities, which rose 4 percent in the third quarter and is now up 11.4 percent for the year. The Tiger Cub’s Viking Long Fund is up 18.1 percent year to date, outpacing the S&P 500’s 16.4 percent gain through September. At the end of the second quarter, Viking had more than $12 billion in U.S. equities invested in just 59 different issues.
An even better example of outperformance comes from Jeff Ubben’s ValueAct Capital, which is up 17 percent through September. San Francisco-based Ubben, who manages $8.5 billion, prefers to run a concentrated portfolio. He owned just 16 stocks at the end of the second quarter, a typical number for his portfoloio.
The median hedge fund return for this year is 4.13 percent through August, according to the Absolute Return composite index, which tracks U.S. hedge funds. The Absolute Return U.S. long/short equity index has returned just 3.79 percent for 2012 through August. While that is far behind the S&P 500 for the year, most hedge funds are not designed to outperform the wider indexes in a strong up year. Many managers strive to avoid close correlation and pride themselves on preserving capital in a market downturn. Still, performance this year has been muted for many funds and follows
Viking’s largest holding was Priceline.com, followed by two credit card companies — Mastercard and Visa — and hedge fund favorite Apple. Its two largest new positions in the most recent quarter were State Street and Eastman Chemical.
Prior to founding Viking in 1999, Norwegian native Halvorsen was a senior managing director and the director of equities at Julian Robertson’s Tiger Management.
Ubben has enjoyed gains this year across many of his positions. For example, Moody’s has surged more than 31 percent, CR Bard is up more than 22 percent, CBRE Group 21 percent, Valeant Pharmaceuticals International more than 18 percent while Adobe Systems, his second largest position at the end of the second quarter, is up nearly 15 percent.
Dan Loeb is also enjoying a pretty good year, although he is trailing the major averages. His Third Point Offshore fund Ltd. was up 3.4 percent in September, bringing its full-year gain to 10.9 percent, according to his most recent monthly letter.
Loeb’s five biggest gains came from Yahoo, an unidentified short position, Greek Government Bonds, gold and Ally Financial. His five biggest losers were American International Group, Enphase Energy, an asset backed security short and what he calls two short positions in TMT (for Technology, Media and Telecommunications).
His six largest positions are currently Yahoo, AIG, gold, Apple, Murphy Oil and those Greek Government Bonds. The latter three positions are approximately the same size.
The Murphy Oil position was not reported in Loeb’s most recent 13F detailing June 30 holdings even though he owned 1.5 million shares at the time. Rather, Loeb disclosed this stake this week in a delayed version of the 13F, which is permitted by the Securities and Exchange Commission and used from time to time by many hedge fund managers to keep certain positions confidential while they build their stakes.
Loeb is best known this year for reviving his activism when he targeted Yahoo.
Earlier this year he agreed to end his threatened proxy battle against Yahoo when the internet company agreed to add three of Third Point's proposed nominees to the board, including Loeb himself.
Dan Och’s Och-Ziff lagged the market by an even greater amount.
All four of the funds he reports in his public filings generated 1 percent to 2 percent gains for September. As a result, for the full year his biggest fund — OZ Master Fund — is up 8.2 percent.
OZ Europe Master Fund gained 6.41 percent through the first three quarters, OZ Asia Master Fund was up 4.26 percent, and OZ Global Special Investments Master Fund gained 7.19 percent.
Och-Ziff is a public company whose its multi-strategy funds are designed to plod along with lower volatility, making their future flow of fees more predictable than those of most other hedge funds, which comforts Wall Street’s analysts who follow the stock.
Two funds that have posted small single-digit gains also not coincidentally have come through in much better shape than other hedge funds.
For example, Izzy Englander’s Millennium Management is only up about 4.5 percent for the year to date. Sources say the firm has not changed its risk profile at all this year. However, last year its funds were up between 8 percent and 9 percent when the average hedge fund was down on average by 5 percent, according to HFR.
London-based Brevan Howard finished September up 1.92 percent. That put the fund back in the black by 1.53 percent for the year to date.
Brevan Howard posted a 20 percent-plus gain in 2008, when most investors suffered big losses. Last year the fund up 12 percent.