By Matt Doiron
Winton Capital was founded by David Harding in 1997. Primarily a quantitative fund, it had over $25 billion in assets under management roughly a year ago. Winton recently filed its 13F for the end of December 2012, disclosing many of its long equity positions going into this year. We use 13F filings to develop investment strategies (read about why you should buy the most popular small cap stocks among hedge funds) and also to provide a quick overview of a manager's top picks so that investors can do more research if the stock sounds appealing. Read on for our thoughts on Winton's five largest positions and compare them to previous filings.
The fund's top pick was Consolidated Edison, Inc. (NYSE:ED) with about 780,000 shares in its portfolio at the beginning of 2013. The $17 billion market cap company shares a couple attributes with many other utilities: it has a low beta (0.1) and a relatively high dividend yield (a little over 4% at recent dividend levels and current prices). This makes it a good prospect for income or defensive investors. Con Ed also trades at 15 times earnings, on either a trailing or a forward basis, and while that might not be quite low enough for a value investor those who do like it for its dividends should be satisfied that it is not overvalued enough to pose much of a risk to their principal.
Harding and his team liked Verizon Communications Inc. (NYSE:VZ), upping their stake to about 960,000 shares from about 840,000 three months earlier. Verizon also has little exposure to the broader economy, as demonstrated by its beta of 0.4, and also offers a high dividend yield (we would place the yield at about 4.5%). Revenue was up slightly last quarter compared to the fourth quarter of 2011. Analyst consensus for 2014 implies a forward earnings multiple of 14. We don't find Verizon particularly appealing but could see comparing it to other telecoms including Vodafone, which has a substantial stake in Verizon Wireless.
Eli Lilly & Co. (NYSE:LLY) was another of Winton's largest holdings. The $60 billion market cap drug manufacturer is yet another stock aimed at more conservative investors as the beta is 0.4 and the dividend yield is 3.6% going by recent dividend payments. Sales dipped slightly in the fourth quarter of 2012 versus a year earlier, causing a 4% decline in net income. Wall Street analysts expect a decline in earnings to continue and so the forward P/E comes out to 19. We would avoid the stock.
Winton bought shares of Kimberly Clark Corp (NYSE:KMB) and had a total of about 410,000 shares in its portfolio at the end of the fourth quarter. The personal products company, whose brands include Kleenex, Scott, and Huggies, reported a 33% drop in earnings in its most recent quarter compared to the same period in the previous year, though revenue was actually up by a bit. Kimberly Clark trades at 21 times trailing earnings, and while it too has low market exposure we worry that it may be overvalued at that pricing.
Rounding out the fund's five largest 13F holdings was CVS Caremark Corporation (NYSE:CVS). The pharmacy, which carries trailing and forward P/Es of 17 and 12 respectively, had made our list of the most popular healthcare stocks among hedge funds for the third quarter of 2012 (see the full top 10 list). Unlike the other stocks on this list its beta comes in at 1, so it's not insulated from market downturns, but the pharmacy industry has been seeing some interest in terms of "growth at a reasonable price." Earnings were up 6% last quarter from their levels in Q4 2011, though we would like to see a higher growth rate to justify the current share price.