10 Best Performing Star Hedge Fund Managers

Insider Monkey tracks 300+ hedge funds and several other prominent investors. We believe investors can beat the index funds by imitating best hedge funds’ stock picks and avoiding worst hedge funds’ picks. One of the ways of determining the “best” and “worst” hedge funds is measuring the performance of their 13F portfolios. In this article we used a methodology  that limits its analysis to S&P 500 constituents. By doing so we can compare hedge funds’ performance to the S&P 500 index and we can also compare one hedge fund to the other. Some hedge funds have stocks, put options, and call options in the same company. We excluded put option positions and assumed that call option positions are equivalent to stock positions.

ICAHN CAPITAL Carl Icahn

S&P 500 index gained 0.1% during the second quarter including dividends. Healthcare, utilities, and consumer staples sectors performed much better than the index. Financials and energy sectors performed much worse than the index. Some hedge funds specialize in these sectors and their returns will be artificially high or low because of their sector bias. We haven’t adjusted returns for sector bias. There are also other hedge funds that invest mostly in small and medium cap stocks and these hedge funds have only small number of investments in S&P 500 constituents. We haven’t excluded any hedge funds from our sample due to small number of observations but we reported the number of stocks that went into the calculations.

Based on our calculations here are the 10 best performing star hedge fund managers of the second quarter:

1. Carl Icahn: Icahn had 9 stocks in his portfolio that are constituents of the S&P 500 index. Four of these stocks had 10+% returns during the second quarter: Biogen (BIIB), Forest Labs (FRX), Mattel (MAT), and NRG Energy (NRG). The weighted average return of Icahn’s stock picks were 10.4%. There were other hedge funds that performed better than Icahn but they aren’t nearly as famous as him (See the list of 25 best hedge fund managers here). In March when Icahn returned his investors’ capital we argued that he is still bullish about the stock market.

2. Barry Rosenstein: Barry Rosenstein made a huge bet on El Paso (EP) which returned more than 12% during the second quarter. Rosenstein had nearly $550 Million in EP’s common stock and $36 Million through call options. Jana Partners’ weighted average return was 6.7%.

3. Nelson Peltz: Trian Partners had 6 stocks that are constituents of S&P 500 index. Half of these stocks gained more than 10%. Peltz’s best performing picks were CBS Corp (CBS), Heinz (HNZ), and Tiffany & Co (TIF). His weighted average return was 5.8%.

4. Chase Coleman: Tiger Global had 10 S&P 500 stocks in its portfolio. Coleman’s best picks were Amazon (AMZN), Mastercard (MA), and Visa (V). His weighted average return was 5.5%.

5. Larry Robbins: Glenview had 41 stocks that are members of S&P 500 index. Robbins’ best performing stock pick was Expedia (EXPE) which returned more than 28% during the second quarter. Here is what he said about Expedia in his latest investor letter:

“Their TripAdvisor business is growing rapidly but may benefit from faster growth post 2011 as an independent company, generating additional ad growth from other non-Expedia online travel sites. We believe the sum of the parts of Expedia is well in excess of a 50% premium to current trading prices. Management and the board have acted before, making significant share repurchases at meaningfully higher valuations. We believe they will likely improve upon past history by adding to repurchase activity, but at meaningfully more attractive prices.

The stock is exceedingly cheap, trading at 8x forward recurring free cash flow and 6x backing out the TripAdvisor stake. We believe that shareholders, management and the board are likely highly aligned to capitalize on opportunities to create value at Expedia.”

6. Chris Hohn: Children’s Investment Fund’s 7 S&P500 stocks had an average return of 4.4% during the second quarter.

7. Joel Greenblatt: Greenblatt had 98 stocks in his portfolio that are constituents of the S&P 500 index. This is such a huge number yet these stocks had a weighted average return of 3.9%. This must the result of Greenblatt’s Magic Formula.

8. Julian Robertson: Tiger Management’s 12 S&P 500 stocks had an average return of 3.3% during the second quarter.

9. David Einhorn: Greenlight’s 14 S&P 500 stocks had an average return of 3% during the second quarter. One of these stocks Einhorn favors is Microsoft and he talked about it at the Ira Sohn Conference too (Read the transcript of Einhorn’s Ira Sohn speech). Interestingly Einhorn’s own performance is worse than the performance of these 14 stocks because his short stock picks hurt him.

10. Jim Simons: Renaissance uses quantitative strategies to pick stocks. They had 277 stocks that are constituents of the S&P 500 index, ye tthey managed to beat the index by 2.8 percentage points.

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