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Insider Monkey profiled Joshua Friedman and Mitchell Julis’ Canyon Capital. Friedman is a graduate of Physics at Harvard College. He also has a master’s degree in Oxford and an MBA from Harvard Business School. Mitchell Julis is a graduate of Princeton University and has an MBA degree from Harvard Business School. The assets under management (AUM) is approximately $18.9 billion and Canyon ranks 22nd in the largest US managers at the beginning of 2010, according to the Hedge Fund Journal (pdf). Canyon invests in different asset classes. Its approach is multi-strategy and it aims for absolute returns using little or moderate leverage. This is how Canyon Capital explains its investment philosophy:

“We are multi-strategy and value-oriented investors, investing across all significant asset classes including bank debt, high yield and distressed securities, securitized assets, direct investments, convertible arbitrage, risk arbitrage, equities and special situation securities. We seek to achieve superior risk-adjusted returns significantly in excess of, and uncorrelated to, the debt and equity market indices.

Our approach is risk averse and event-driven. We adhere to rigorous due diligence and investment processes, focusing on the underlying economics and financial staying power of the business. Canyon also looks critically at the capital structure and risk and return of an investment versus market expectations.

Our portfolio is broadly diversified. Value at risk per position is low. Our largest positions rarely account for more than 3% of total assets under management and we employ only modest leverage, if any.”

Value Realization Fund, which is Canyon’s flagship fund, invests in 33% in equity and 67% in fixed income securities. The fund is unleveraged and returned 13.5% during the 2010, making it the 9th most profitable hedge fund in 2010 according to Bloomberg Markets Magazine. Five year annualized return is 9.2%. During the economic crisis at 2008, fund lost approximately 28%.

US equities are a small percentage of Canyon’s portfolio. At the end of December, its US equity investment is about $1.32 Billion and this is only 7% of AUM. Canyon had 80 stocks in its portfolio at the end of December. Below are Canyon’s largest long-term equity holdings, kept at least 1 year.

Stock

Value (Million $)

Return

JPMorgan Chase & Co. (JPM)

68.3

7.0%

Bank of America Corporation (BAC)

33.4

-16.4%

Clear Channel Outdoor Holdings Inc. (CCO)

32.0

39.3%

Amkor Technology, Inc. (AMKR)

30.0

8.8%

Hawaiian Holdings Inc. (HA)

15.7

-15.9%

CIT Group, Inc. (CIT)

14.6

21.3%

Graham Packaging Company, Inc. (GRM)

10.3

53.7%

Live Nation Entertainment, Inc. (LYV)

8.9

-22.7%

Energy Conversion Devices, Inc. (ENER)

7.5

-53.6%

Leap Wireless International Inc. (LEAP)

6.3

-17.3%

Amylin Pharmaceuticals, Inc. (AMLN)

2.6

-24.2%

The last column shows the return values for a one year period. Weighted average return of Canyon’s portfolio is 5.6% where the SPY returned 18.8%. Canyon’s long term holdings underperformed the SPY by a huge margin. CIT and AMLN holdings are reduced more than 200% during the last quarter of 2010. They returned -7.3% and 2.2%, respectively. BAC holdings are increased by 64.4% during the fourth quarter and returned 4.4 since then. Most timely moves are for HA and ENER. Stock holdings reduced by 43.8% and 25% in the meantime they lost 15.9% and 20.4% since the end of December 2010, respectively. Stephen Mandel’s Lone Pine Capital, John Griffin’s Blue Ridge, Bill Miller’s Legg Mason Capital, Lee Ainslie’s Maverick Capital, George Soros, David Tepper’s Appaloosa, Martin Zweig’s Zweig-DiMenna, and John Paulson’s Paulson & Co are all bullish about JP Morgan (JPM). Tom Brown, a hedge fund manager who specializes in bank stocks, is also bullish about JPM.

During the last quarter of 2010, Canyon bought 27 new stocks. Here are 10 largest picks.

Stock

Value ( Million $)

Return

Liberty Global Inc. (LBTYA)

84.6

16.7%

Chemtura Corp. Common Stock (CHMT)

74.6

-0.4%

Genworth Financial Inc. (GNW)

54.2

-2.6%

Charter Communications, Inc. (CHTR)

40.2

20.5%

Hess Corporation (HES)

33.7

10.6%

Tenet Healthcare Corp. (THC)

32.1

5.1%

DeVry, Inc. (DV)

28.8

10.6%

Comcast Corporation (CMCSA)

23.3

15.6%

Quicksilver Resources Inc. (KWK)

22.1

-0.7%

Chimera Investment Corporation (CIM)

20.5

2.2%

The weighted average return of those new picks is 7.9%, outperforming SPY by 3.8 percentage points. Six of ten picks have beaten the market. CHTR is the best performing pick of Canyon. Chase Coleman, who returned more than 70% in 2010, is extremely bullish about Canyon’s largest new stock pick LBTYA. Passport Capital’s John Burbank likes CHMT. There aren’t any prominent hedge fund managers with Genworth Financial Holdings.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Canyon Capital's Market Beating New Stock Picks