Alan Howard, a former head of proprietary trading at Credit Suisse First Boston, co-founded Brevan Howard Asset Management LLP, an investment firm, with Jean-Philippe Blochet in 2002. Blochet left the firm in 2009. Alan Howard is currently responsible for some 25% of the company's trades. He is known as an extremely risk-averse investor who focuses on macro trades. Howard's objective is finding "asymmetrical outcomes" in all sorts of investment vehicles. With net worth of $2 billion, Howard ranks 634 on the list of Forbes Billionaires.
In 2011, Howard's $27 billion Master Fund, which has made money every year since its launch in 2003, ranked fifth in Institutional Investor's Hedge Fund 100. The Master fund returned more than 12% in 2011, compared to a negative 5% return by an average hedge fund. Even during the worst financial crisis in modern times, in 2008, Brevan Howard Master Fund scored a 20.4% gain, while average fund lost 19% and the S&P 500 dived 37%.
Here are Alan Howard's largest 5 positions that pay dividends:
Cisco Systems (CSCO) represented the fifth largest position in Alan Howard's portfolio in the first quarter. That position is currently valued at $7.8 million. The stake was reduced by 40% in the previous quarter. The company is a $91 billion network equipment giant that pays a dividend yield of 1.9% on a low payout ratio of 24%. Its rival Hewlett-Packard (HPQ) pays a dividend yield of 2.6%, while competitors Alcatel-Lucent (ALU) and Juniper Networks (JNPR) do not pay any dividends. Analysts forecast that the networking giant will boost its EPS at a 10% average annual rate for the next five years, almost double the rate from the past five years. Share buybacks will contribute to EPS growth. However, there are some indications that the low worldwide growth could restrain EPS growth in the next several years. Still, Cisco Systems should be able to sustain its free cash flow above $1 billion, despite the weakening outlook. This may suggest solid dividend increases in the future. Cisco's stock is trading at $16.94 a share, down 6.3% year-to-date. The stock is currently undervalued relative to competitors and the company's own historical metrics. Among famous fund managers, the stock is popular with Jean-Marie Eveillard (First Eagle Investment Management - see its holdings) and Andreas Halvorsen. Billionaire Dan Loeb purchased the stock in the first quarter.
Microsoft Corporation (MSFT) was the seventh largest position in Howard's portfolio in the first quarter. It is currently valued at $5.8 million. Microsoft sells and licenses software products, enterprise consulting services, online information and content services, gaming consoles, and other products and services. It pays a dividend yield of 2.6% on a low payout ratio of 29%. Competitors Oracle (ORCL) and IBM Corporation (IBM) yield 0.8% and 1.7%, respectively. Apple will pay a dividend yield of 1.9% this quarter. Rival Google (GOOG) does not pay any dividends. Microsoft had record revenues and operating income in the past quarter. Still, the company will boost its EPS at an average rate of 10% per year for the next five years, somewhat slower than during the past five years on average. There are indications the company's servers business is growing fast and that opportunities exist for the company to boost margins. The company's shares are trading at $30.70 per share, up 18.3% year-to-date. The company is valued below its industry. Microsoft is one of the most popular stocks among hedge funds (see the 10 most popular stocks).
CME Group (CME) represented the eight largest position in Howard's portfolio in the first quarter. That position is currently worth some $5.4 million. The $17.6 billion company is the world's largest operator of financial derivatives' exchanges and clearinghouses. It is also known as the owner of the Dow Jones stock and financial indices. The CME Group consists of the Chicago Mercantile Exchange , Chicago Board of Trade (CBOT), New York Mercantile Exchange (NYMEX), and Commodities Exchange (COMEX). CME Group pays a dividend yield of 3.3% on a payout ratio of 37%. The company's peers CBOE Holdings, Inc. (CBOE) and Nasdaq OMX Group Inc. (NDAQ) pay dividend yields of 1.7% and 2.3%, respectively. The company is expected to grow its EPS at an average rate of 11.7% a year for the next five years. CME Group has just entered into a joint venture with McGraw-Hill Cos. (MHP) that has created S&P Dow Jones Indices. CME Group's shares are trading on a forward P/E above that for its industry. The stock is changing hands at $265.17 a share, up almost 9% from the beginning of the year. Recently, analysts at Jefferies gave the company a buy rating, revising higher earnings estimates and the price target due to improved trading volume trends. Others are wary of the company's trading volumes, given the economic uncertainty and trading volatility. Jim Simons and David E. Shaw (DE Shaw-see top picks) hold shares in this stock.
Intel Corporation (INTC) was the ninth largest position in the Brevan Howard portfolio in the first quarter. That position is currently valued at $4.6 million. The stake was cut by 50% in the quarter. Intel is the world's largest semiconductor maker. It pays a dividend yield of 3.1% on a low payout ratio of 36%. Its peer Texas Instruments Inc. (TXN) pays a dividend yield of 2.4%, while Advanced Micro Devices, Inc. (AMD) and NVIDIA Corporation (NVDA) do not pay any dividends. The company has seen strong growth in EPS over the past five years, averaging 23% a year. Over the same period, Intel bolstered its dividend at a rate of 14.6% a year. Going forward, Intel's EPS is forecast to grow at a 10.7% annual rate for the next five years. Still, there road to EPS growth will be bumpy. According to Semiconductor Industry Association, global chip sales dipped 2% in May from the year earlier, following a gain of 3% in April. IT spending has weakened recently amid softness in spending by telecoms, phone, and PC manufacturers. The new evidence of slowing demand puts at risk a global chip revenue growth forecast of 4.5% this year. The stock is changing hands at $26.55 a share, up 9.5% year-to-date. Billionaires Ken Fisher and Warren Buffett are also fans of Intel.
Valero Energy Corporation (VLO) was the tenth largest position in Howard's portfolio in the first quarter. That stake is currently valued at $3.9 million. The company is a $13.5 billion independent petroleum refiner and pipeline operator. Valero Energy pays a dividend yield of 2.4% on a payout ratio of 22%. The company's rivals Sunoco (SUN) and HollyFrontier (HFC) pay yields of 1.7% and 1.6%, respectively. Competitor Tesoro (TSO) does not pay any dividends. The company's growth in revenue has been strong. Valero Energy's EPS are forecast to expand at an average annual rate of 9.4% a year for the next five years. The stock was recently upgraded by UBS, which cited the recent drop in the Valero Energy's stock price as an attractive investment opportunity. The UBS analysts see a large decline in the refiner's capex next year, which will release free cash flow that will enable the company to boost its dividend. The stock is currently trading at $24.41 a share, up 16% year-to-date. The stock is trading at a major discount relative to the refining industry. Billionaires David Tepper, Ken Griffin, and George Soros also hold positions in this stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.