David Gallo, founder of the Valinor Management hedge fund, is one of the infamous “Tiger Cubs” – a name commonly given to those analysts who started at Tiger Management and have gone on to found some of the world’s most profitable hedge funds (Read more about “Tiger Cubs” here). Unfortunately, Gallo’s performance has been less than impressive.
Since the end of the first quarter, his Valinor Management, so named for the place where immortal souls rest in the “Lord of the Rings” trilogy, has underperformed the S&P 500 (SPY) by almost 7 points. Gallo saw a negative return in all of his top 25 stock picks except one – the business service provider Cardtronics Inc (CATM). While the return was a modest 10%, Gallo still reduced his position in the company by 3%. Still, Gallo owns 10 times more shares of Cardtronics than any other hedge fund; Ken Griffin’s Citadel Investment Group is the closest at 247,330 shares compared with Valinor’s 2,433,012 shares (check out Ken Griffin’s top stock picks). Here are Gallo’s top stock picks at the end of March and their returns since then:
CompanyName | Ticker | Value (x1000) | Activity | Return |
POPULAR INC | 100269 | 30% | -23% | |
COTT CORP QUEBEC | 78838 | 49% | -10% | |
ARRIS GROUP INC | 74908 | New | -19% | |
MORGAN STANLEY | 70942 | 16% | -33% | |
GOOGLE INC | 70931 | 64% | -2% | |
SWIFT TRANSPORTATION | 70078 | New | -43% | |
STAPLES INC | 69754 | 55% | -32% | |
STATE STREET CORP | 69120 | 67% | -20% | |
PLAINS EXPLORATION & PROD | 68330 | New | -14% | |
COVANTA HOLDING CORP | 60542 | 17% | -12% | |
GOLDMAN SACHS | 60511 | 31% | -22% | |
D S W INC | 60126 | 77% | 19% | |
REGIONS FINANCIAL CORP | 59600 | 0% | -34% | |
GENERAL MOTORS CO | 57482 | 209% | -18% | |
DELL INC | 56956 | -8% | -1% | |
JPMORGAN CHASE & CO | 56227 | 31% | -20% | |
WYNDHAM WORLDWIDE | 54897 | 35% | -13% | |
DANA HOLDING CORP | 54497 | 72% | -29% | |
NOBLE CORP BAAR | 54046 | -37% | -33% | |
MADISON SQUARE GARDEN | 52942 | 18% | -10% | |
CON WAY INC | 51288 | 39% | -34% | |
CHEMTURA CORP | 50752 | 49% | -22% | |
CLEARWATER PAPER CORP | 49731 | 21% | -13% | |
SOLARWINDS INC | 49714 | -39% | -2% | |
CARDTRONICS INC | 49511 | -3% | 10% |
In all of Valinor’s other top stock picks, Gallo lost big. His largest loss since March 31, 2011, was in his Swift Transportation Inc (SWFT) position; he lost 43%. It is a new position for Valinor and is favored by several big hedge funds, like the $1.14 billion hedge fund SAB Capital Management, headed by Brian Jackelow (See more about SAB Capital).
Valinor’s next five lowest returns lost the hedge fund approximately one-third of its investments; these losses include 34% in Con Way Inc (CNW) and in Regions Financial (RF) respectively, 33% in Noble Corp (NE) and in Morgan Stanley (MS) and 32% in Staples Inc (SPLS).
We like David Gallo. Historically, his Valinor Management has produced returns of more than 25%, 44.2% higher than the S&P 500, but his losses have been considerable as of late. Moreover, considering that all of Valinor’s top 25 stock picks produced double-digit negative returns except for the modest return in Cardtronics and small losses (-1% and 2% respectively) in Dell Inc (DELL) and Google Inc (GOOG), this is a trend that is likely to continue, at least for now. Investors are cautioned against mirroring Gallo’s picks.
Disclosure: I am long MS.
