By Eric Winter
Following a hedge fund manager's portfolio quarter after quarter can give an investor special insight into a fund's research process, risk management, and investing criteria, amongst other things. We see value in this information and continually comb over 400+ hedge fund's holdings to discern portfolio moves and areas of high conviction. This has led us to produce a small-cap strategy that has returned 37% from September 2012 to March 2013 versus the market's 12.9% return (find out more here). We use a manager's holding period as one of our indicators of interest; with that said, here's our take on $3.2bn Elliott Management's biggest small-cap holdings that have remained in its portfolio for a year or greater. Elliott Management is led by billionaire Paul Singer.
Compuware Corp. (CPWR) is the small-cap that has received the largest monetary commitment from Elliott and its billionaire manager, Paul Singer, as of the last quarter of 2012. With 4% of the fund's AUM allocated to the $2.5bn software company, Singer made a statement throughout last year by building his position by 158% from Q1 to Q4. Elliott offered to buy the company for $11/share in January of this year but was shot down; since then, buyout rumors by large PE firms such as Blackstone, TPG, and Thoma Bravo have sent the stock into some volatile swings. Billionaire Tom Sandell of Sandell Asset Management keeps over 20% of his portfolio in CPWR (check out his portfolio's make-up here).
Brocade Communications Systems (BRCD) claims almost 2.5% of Elliott's assets with a market cap of $2.6bn. The fund dropped its position in the networking equipment supplier by more than half over the course of last year; the stock performed relatively flat over that time period. BRCD has bestowed investors with earnings beat after earnings beat over the time period of our study and is estimated to report an EPS of $0.12 on the ninth of May. Billionaire Jim Simons of Renaissance Technologies has an investment in BRCD valued at roughly half of Elliott's $80mm position (see the fund's positions here).
Sandridge Energy Inc. (SD) is a $2.2bn independent oil and gas company that currently takes a 1% spot in Singer's portfolio, falling from 1.6% in the middle of 2012. SD has struggled since the start of the year, down 34% due to weakened support from analysts all across Wall Street. Profitability, CEO, and natural resource pricing woes have brought on downgrades from the likes of BMO Capital, Tudor Pickering, and Stifel Nicolaus since the start of March alone. Famed energy investors and billionaire T Boone Pickens of BP Capital carries over 600,000 shares of SD in his portfolio.
United States Steel Corp. (X) grabs the fourth spot on our screen with a market cap of $2.4bn and a 10mm share commitment from Singer, reduced from 38mm at the start of 2012. The second-largest steel company in the U.S. has certainly seen better times, down over 30% since the turn of 2013 and trading near its 52-week low. Falling iron ore prices and dropping steel imports weigh heavily on the company's operations going forward, but a number of research houses see these low valuations as a buying opportunity (Standpoint Research and Credit Suisse amongst them). Billionaire Howard Marks of Oaktree Capital Management has a $54mm debt investment in X.
Cadence Design Systems, Inc. (CDNS) brings up the bottom of the list with a market cap of $3.6bn. Elliott claimed to own 5mm shares of the stock at the end of last year, down 33% from its holdings in Q1 2012. CDNS has plans to acquire processor core developer Tensilica for $380mm, financed with cash and some credit. Although the stock decreased in popularity towards the end of 2012 amongst the 400+ hedge funds we track, actual committed capital increased from $266mm to $326mm. Billionaire Glenn Russell Dubin of Highbridge Capital Management has $61mm devoted to CDNS.