By Eric Winter
The release of many funds' 13F filings is still fresh, giving us the opportunity to analyze over 400 hedge funds' holdings for the final quarter of 2012. While these documents are reported to the SEC with a 45-day delay, this actually improves investors' ability to beat the market, as fund managers are known to be early into their investments. We have found that some of the most popular small caps amongst hedge funds consistently outperform the market; our strategy is up over 29% since last September alone (read more here). Millennium Management, headed up by billionaire Israel Englander, released its Q4 2012 13F recently, and we've analyzed the fund's biggest new picks below.
Of the 682 new purchases last quarter, the iShares MSCI Japan Index Fund (EWJ) stood as the largest of Millennium's, with an allocation of over $110mm. The position comes in the form of a call option, indicating the fund's speculative bullish take on Japan's stock market. Economists have been overwhelmingly bearish on the yen as of late (and simultaneously long the Nikkei and Japanese stocks), citing Prime Minister Shinzo Abe's push for inflation. The ETF has gained about 15% in the past four months. Billionaire Louis Bacon of Moore Global Investments is bullish as well, amassing 4mm shares last quarter.
ADT Corp. (ADT) was Englander's second-largest new investment, snagging almost $43mm of the firm's funds. ADT saw a strong increase in popularity in the last quarter of 2012 amongst the hedge funds that we track. The company operates in a $13bn home and small-business security market and commands 25% of that market share. ADT reported earnings at the end of January, delivering increases in net earnings, revenues from monitoring services, and operating margin. It also announced a $600m common stock repurchase program. Billionaire Steven Cohen of SAC Capital Advisors has a $13.2mm investment in ADT (check out his favorite stocks here).
With primary operating territories in the Gulf of Mexico and offshore West Africa, Cobalt International Energy, Inc. (CIE) acted as an oil and gas play for Millennium Management. The stock has suffered through the past twelve months, losing around 16% of its value compared to the market's 13% gain. In spite of this, Wall Street sees a bright future for CIE, with fourteen analysts weighing in to give the stock a mean price target one year out of almost $37 (to give some perspective, CIE is currently trading at $25.50). Ken Griffin of Citadel Investment Group has spanned multiple asset classes with his CIE investment, taking on an equity, debt, put, and call position.
Realogy Holdings Corp. (RLGY) is a $6.9bn real estate and relocation service provider comprising 0.17% of Millennium's $15.9bn under management. The company owns recognizable brands such as Coldwell Banker and Century 21 and recently had its initial public offering in October of last year. Large stakeholders include Apollo Global Management, who owns half of the company, as well as John Paulson of Paulson & Co. The stock has returned 38% to investors since it debuted. Billionaire James Dinan of York Capital Management joins Paulson and Englander as shareholders.
Kraft Foods Group, Inc. (KRFT) is the last new addition on our list, rounding out Millennium's top-five newest positions. The ubiquitous manufacturer of food and beverage products split into two companies last October, with KRFT assuming the North American grocery operations and Mondelez International (NASDAQ:MDLZ) devoted to the global snacks business. The stock pays a high dividend yield of 4.10%, garnering investors with quarterly income. KRFT reported earnings on the fifteenth of last month, with revenues dropping by over 10%; 4.2% of that was due to Q4 2011 containing an extra week versus Q4 2012. D.E. Shaw maintains a 1.5mm share position in KRFT.