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Summary: Guru Mark Kingdon of Kingdon Capital Management has generated an outstanding 15%-18% long-term compounded return for investors in his hedge funds over the last 25 years, well ahead of the market index returns. His best new conviction buys include Citigroup (NYSE:C), McDonalds Corp. (NYSE:MCD), HCA Holdings Inc. (NYSE:HCA), Metlife Inc. (NYSE:MET) and Target Corp. (NYSE:TGT). His top sell is General Motors Company (NYSE:GM).

New York-based Long/Short Equity Hedge Fund Kingdon Capital Management LLC founded in 1983 by Mark E. Kingdon manages over $4 billion in assets, including $3 billion in equity assets. Kingdon began his career as a pension fund administrator with AT&T (NYSE:T), and then worked for Century Capital Associates for eight years prior to founding Kingdon Capital Management. The firm invests in growth and value stocks across the market capitalization range, and they employ a top-down approach to select the economies and a bottom-up stock picking approach to make its investments. Their larger $2.8 billion Kingdon Offshore Ltd. Fund has generated a cumulative return of 3,781% since founding in 1986 at 15.64% compound annual growth versus 1,012% for the S&P 500 at 9.7% compounded growth. The $1.7 billion Kingdon Associates fund has generated 10,339% cumulative return since founding in 1983 at 18.05% compound return versus 2,760% cumulative at 12.6% for the S&P 500.

The fund holds a diversified portfolio of 251 equity positions, about 60% of that in large-caps, 20% in mid-caps and the remaining 20% in small-caps. Their portfolio turnover is 150%-200%, implying an average holding period of six to eight months. Based on the most recent SEC 13-F filing for the March 2011 quarter, we determined that their portfolio is over-weight Basic Materials, Services Transportation and Consumer Sectors, and it is under-weight Healthcare and Energy Sectors.

The following summarizes their new picks and pans in the latest reported 13-F filing for the March 2011 quarter, and updated based on any 13-G filings since the end of the quarter:

  • General Motors Company (GM) is a global automaker that produces cars and trucks and sells them under the brand names Baojun, Buick, Cadillac, Chevrolet, GMC, Daewoo, Holden, Opel, Isuzu, Vauxhall, Jiefang, FAW, and Wuling. This position was initiated in the prior December 2010 quarter in the mid-$30s, so the selling out of that position completely in the low-$30s last quarter at a loss indicates a conviction in their sell decision.

  • Citigroup Inc. (C) is a global financial services company, providing consumers, corporations, governments, and institutions with a range of financial products and services. This is a large new $77 million conviction buy in the current quarter.

  • Micron Technology, Inc., (NASDAQ:MU) together with its subsidiaries, engages in the manufacture and marketing of semiconductor devices worldwide. Its products include dynamic random access memory (DRAM) products that provide data storage and retrieval, which include DDR2 and DDR3; and other specialty DRAM memory products, including DDR, SDRAM, DDR and DDR2 mobile low power DRAM, pseudo-static RAM, and reduced latency DRAM. The position was initiated at the end of 2010 in the $8 range, so the selling out of the entire position in three months in the $11-12 range at a 40%+ gain appears to be profit taking.

  • McDonald's Corp. (MCD), together with its subsidiaries, operates as a worldwide food-service retailer. It franchises and operates McDonald’s restaurants that offer various food items, soft drinks, coffee, and other beverages. This position was initiated at the end of 2010 in the mid-$70s, so the addition of a large $59 million position to their prior $5 million position shows conviction in their decision.

  • HCA Holdings Inc. (HCA) owns and operates 151 general acute care hospitals is the U.S. and England. This is a large new $59 million conviction buy.

  • MetLife Inc. (MET) offers life, non-medical health, auto and home-owners insurance, annuities and financial services. This is a large new $58 million conviction buy.

  • Target Corp. (TGT) operates 1,750 Target Stores and SuperTarget Stores across the U.S. offering everyday items, food and fashionable merchandise. This position was initiated in 2009, so the addition of another $52 million to their prior $7 million position is a conviction buy.

  • General Electric (NYSE:GE) is a conglomerate, and operates as a technology, media, and financial services company worldwide. This is a large new $50 million conviction buy.

  • Apple Inc. (NASDAQ:AAPL) manufactures personal computer, mobile communication devices, and portable music players. This is their largest position at $209 million so the selling of a minor $35 million after Apple’s enormous upside run recently appears to be profit-taking.

  • Comcast Corp. CLA (NASDAQ:CMCSA) provides cable services and content to 22.8 million subscribers in 39 states as well as Internet and phone services. This position was initiated in December 2010 in the $20 range, so the addition of another $42 million to their prior $37 million position at higher prices in the mid-$20s has conviction.

  • Coinstar Inc. (CSTR) operates self-service DVD kiosks in 26,100 locations and self-service coin-counting machines in 18,900 locations. This is their fourth largest position at $75 million, and they own a significant 5.2% of the outstanding shares indicating a conviction in their hold decision.

Table

Company

Ticker

Action

Market Value at End of March 2011 Quarter

Change in Value from Prior Quarter

Percent of Portfolio

Percent Shares Owned

New Picks and Pans

General Motors Co.

GM

Drop

$ 0 million

($93) million

0.00%

0.00%

Citigroup Inc

C

New

$ 77 million

$77 million

2.49%

0.06%

Micron Technology Inc

MU

Drop

$ 0 million

($61) million

0.00%

0.00%

McDonalds Corp

MCD

Add

$ 64 million

$59 million

2.05%

0.08%

HCA Holdings Inc

HCA

New

$ 59 million

$59 million

1.89%

0.34%

MetLife Inc

MET

New

$ 58 million

$58 million

1.87%

0.12%

Target Corp

TGT

Add

$ 59 million

$52 million

1.91%

0.17%

General Electric Co

GE

New

$ 50 million

$50 million

1.61%

0.02%

Top Holdings

Apple Inc

AAPL

Cut

$ 209 million

($35) million

6.74%

0.06%

Comcast Corp New

CMCSA

Add

$ 79 million

$42 million

2.55%

0.15%

Coinstar Inc

CSTR

Same

$ 75 million

$0 million

2.41%

5.20%

Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, 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.

Source: Top New Buys and Sells of Hedge Fund Guru Mark Kingdon