By Eric Winter
Goldman Sachs and Lehman Brothers alum Noam Gottesman co-founded GLG Partners in 1995, and his fund has since grown to become one of the largest hedge funds in the world. Our interests in his holdings span multiple parameters, including holding period, new activity, market cap, and dividend yield. Our research has shown that hedge funds' small cap stock picks outperform the market by 18 percentage points per year (learn more about the strategy here). Their long-term holdings in this strategy perform even better. We take a particularly keen interest in companies that have remained in billionaire Gottesman's portfolio for the long term. Read on to see our take on five of the highest yielding stocks that have stayed in GLG's favor for a year or longer.
Prospect Capital Corporation (PSEC) stands at the top of our list with a massive dividend yield of 12.4%. The finance company injects capital in middle-market and private equity applications and closed more than $2.25bn worth of deals in 2012. GLG's debt stake decreased substantially from Q1 2012 to Q4, starting with over 15mm shares and ending with just 4.9mm. Performance since the start of this year has been impressive, netting investors 10%. Billionaire Ken Griffin of Citadel Investment Group is a fan with over $60mm employed across debt and equity investments (check out his portfolio's make-up here).
Annaly Capital Management (NLY) grabs the seconds spot with another double-digit dividend yield, this time earning 11.5%. Similar to PSEC, GLG dropped its debt position in NLY from the start of 2012 until the end, although Q2 saw a 30% increase in size briefly. NLY falls into the category of mortgage REITS, involved in the ownership and financing of real estate related investments (think securitized assets, mortgage pass throughs, CMOs, etc.). The high yield came in handy for equity investors towards the end of 2012; the stock has lost 15% since late September of last year. Billionaire Louis Bacon of Moore Global Investments owns over a million shares of NLY (view his top five stocks here).
Vector Group. Ltd. (VGR) competes in the real estate investment arena as well, but it differs by operating a tobacco segment that manufacturers and sells cigarettes. VGR provides a yield of 10.2% despite a small market cap of $1.4bn. VGR trudged through each of its past four earnings seasons, issuing consistent misses. Contrary to the other companies on our list, Gottesman kept his debt position steady for the past year, maintaining a size of 1.8mm shares. Billionaire Jim Simons of Renaissance Technologies holds about 4.2mm shares for his portfolio.
RAIT Financial Trust (RAS) continues the trend of REITs that offer impressive dividend yields. The company upped its quarterly dividend by 20% last month, giving investors a forward yield of 6.5%. A month before that, RAS announced Q4 earnings and delivered an estimate-beating FFO of $0.33 (FFO stands for funds from operations, which is the metric REITs use as opposed to EPS). RAS has blazed higher since the start of 2013, bestowing investors who bought in at the turn of the year with an incredible 46% gain. Gottesman dropped his debt position in RAS slightly in Q4 2012 but kept it even in the quarters prior. Billionaire Howard Marks of Oaktree Capital Management has a $16mm debt investment in RAS.
Newmont Mining Corp. (NEM) rounds out our screen with a respectable yield of 5.2% and acts as a non-real estate-related investment for those seeking diversity. Gottesman bumped up his debt position in the gold producer by a whopping 1264% from Q1 2012 to Q4, starting that year with 380,000 shares and ending with 5.2mm. During that time, the stock lost 25%, indicating that GLG might have been averaging down its investment as the stock sank to lower market valuations. A drop in gold prices has kept the stock falling in 2013, giving back 28% in PPS so far. Billionaire Daniel S. Och of OZ Management has a $32mm put position in NEM.