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What do the top Hedge Fund Gurus like in the Optical Networking Sector? Through research of the latest available institutional 13-F filings, this article identifies the gurus that are most invested in Optical Networking sector, and the specific Optical Networking companies which they prefer to hold in their hedge fund portfolios. The first three articles in this series identified gurus that are over-weight in the Solar Sector, Utilities sector, China stocks, and the Airline Sector, and the stocks within those sectors that they hold in their portfolios (For those familiar with the series, skip over to the fifth paragraph).

A guru is defined as someone who is regarded as having great knowledge, wisdom, and authority in a certain area. When it comes to hedge funds, there are a number of ways to anoint leading managers as gurus, including long-term performance, low portfolio volatility and an elite reputation in the investment community.

Many of us are familiar with leading investors and hedge fund managers such as Warren Buffett, George Soros, Carl Icahn and Julian Robertson. But the hedge fund community alone includes over 9,000 funds. Add in mutual funds, ETFs, and other investment entities and the number is likely to be at least two to three times that number. While there is no official list of gurus, less than one percent, or between 100 to 200 fund managers, are commonly believed by the larger investment community to have earned the distinction of being called gurus.

The study of the investing habits of gurus can be informative as these are very savvy, well-respected investors with high personal net worth, deploying large sums of capital from their funds on a regular basis. They have a long-term track record of success. And while one can easily just ride their coattails, the savvy investor may want to use these lists as a starting point to conduct their own due diligence.

The total capitalization of the U.S. Equity markets is somewhere in the $15 trillion range, and the total market capitalization of leading Optical Networking stocks is approximately $130 billion or 0.87% of the overall market. This includes both companies that are a ‘pure play’ on optical networking as well as larger networking companies like Cisco Systems Inc. that sell a diverse range of networking products including optical networking products. The table lists five hedge fund gurus whose funds have invested over two-and-a-half times the average of 0.87% (which calculates to at least 2.17%) in the Optical Networking group, and the following is a list of their picks in the Optical Networking sector:

  • Cisco (NASDAQ:CSCO) is by far the predominant pick. This is not surprising since Cisco, with a market capitalization of $95 billion, makes up over two-thirds of the sector's market capitalization. However, it does indicate a preference for Cisco over its peer Alcatel-Lucent ADS (NYSE:ALU) which is also a diverse (French) provider of telecommunication networking products including optical networking products.

  • JDS Uniphase Corp. (NASDAQ:JDSU) is a provider of communications test and measurement solutions, and optical products to telecommunications service providers, cable operators, and network equipment manufacturers.

  • Arris Group Inc. (NASDAQ:ARRS) is a provider of telephony, data, and video equipment for the broadband communications industry worldwide, including optical products such as optical transmitters, optical amplifiers, optical repeaters, optical nodes, optical network units and optical line terminals.

  • Finisar Corp. (NASDAQ:FNSR) is a provider of optical subsystems and components that are used to interconnect equipment in short-distance local area networks (LANs), storage area networks (SANs), longer distance metropolitan area networks (MANs), fiber-to-the-home networks, cable television networks, and wide area networks.

  • Tellabs, Inc. (NASDAQ:TLAB) is a developer of telecommunications networking products for communications service providers worldwide including optical products and solutions.

  • Adtran, Inc. (NASDAQ:ADTN) is a provider of both fiber-based and copper-based network access solutions that enable voice, data, video, and Internet communications across wire-line and wireless networks worldwide.

  • Sycamore Networks Inc. (OTCQB:SCMR) is a developer of intelligent bandwidth management solutions for fixed line and mobile network operators worldwide including a portfolio of optical switches.

Table

Fund and Guru

Type of Fund

Assets Under Management

Percent Portfolio in Chinese Stocks

Major Optical Networking company positions in Portfolio

Centaur Capital Partners, LP (Zeke Ashton)

Hedge Fund - Long/Short

$ 98 million

8.1%

CSCO

Soros Fund Management LLC (George Soros)

Hedge Fund – Global Macro

$5.1 billion

5.2%

JDSU, ARRS, CSCO, FNSR, TLAB, ADTN

Jabre Capital Partners (Philippe Jabre)

Asset Management including Hedge Fund

$1.7 billion

5.0%

CSCO

Perella Weinberg Partners Capital Management LP (Dan Arbess)

Hedge Fund – Multi-Strategy

$4 billion

3.1%

CSCO

Third Avenue Management LLC (Martin Whitman)

Mutual Funds and Hedge Funds

$ 5.6 billion

2.2%

SCMR

Zeke Ashton’s Centaur Capital Partners manages the investments for the Centaur Value Fund and the Tilson Dividend Fund. Its investment philosophy is Buffett-like, based upon value principles. The fund selects stock investments based upon true business value as reflected by asset value, cash flow generation, management quality and the competitive advantages of the underlying businesses- when such stocks are available at compelling prices.

Mr. Soros is a renowned, Hungarian-born American investor. He is most famous for his spearheading the Quantum Fund that is believed to have single-handedly broken the Bank of England in 1992, forcing it to devalue the pound. A mere $1,000 invested in 1969 when Soros established the Quantum Fund would have been worth $4 million by the year 2000, achieving a cumulative return of 32%.

Jabre Capital Partners, headquartered in Geneva, was started by Lebanese-born Philippe Jabre in 2007. It is an asset management firm that offers both hedge fund and traditional management strategies. Its hedge fund uses an equity-driven arbitrage strategy.

Perella Weinberg Partners, a hedge fund founded by Joseph R. Perella and Peter Weinberg in 2006, has $4 billion in AUM, including over $700 million in equities. The fund employs a multi-strategy approach.

Third Avenue Management, founded by legendary investor and Guru Martin Whitman, manages mutual funds, separately managed accounts and hedge funds. The fund is a balance sheet investor that seeks to invest in safe companies that are cheaply priced.

Credit: Historical fundamentals including operating metrics and stock ownership information were derived using I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are my opinions and I may be wrong. I may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to my thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

Source: Top Optical Networking Picks by Hedge Fund Gurus