After compiling and analyzing the most recent 13F filings of hedge funds, we have found that Richard Perry’s Perry Capital and Seth Klarman’s Baupost Group keep around 14% of their portfolios invested in the same stocks. We will not go into the details of every position they have in common, but we would like to concentrate on the top four combined bets of both managers, which are in American International Group Inc (NYSE:AIG), Cheniere Energy Inc (NYSEMKT: LNG), Theravance Inc (NASDAQ:THRX) and Micron Technology Inc (NASDAQ:MU). So, let’s take a closer look at how Mr. Perry and Mr. Klarman adjusted their positions recently and their sentiments towards each of these stocks.
We don’t just track the latest moves of funds. We are, in fact, more interested in their 13F filings, which we use to determine the top 15 small-cap stocks held by the funds we track. We gather and share this information based on 16 years of research, with backtests for the period between 1999 and 2012 and forward testing for the last 2.5 years. The results of our analysis show that these 15 most popular small-cap picks have a great potential to outperform the market, beating the S&P 500 Total Return Index by nearly one percentage point per month in backtests. Moreover, since the beginning of forward testing in August 2012, the strategy worked brilliantly, outperforming the market every year and returning 145%, which is more than 85 percentage points higher than the returns of the S&P 500 ETF (SPY) (check our research).
The first on our list up for review comes the stock of American International Group Inc (NYSE:AIG). Perry Capital has 18.62% of its public equity portfolio allocated into this stock, representing extreme bullishness. At the end of the first quarter the fund owned 10.36 million shares of American International Group Inc (NYSE:AIG) valued at $565.71 million. During the year, the stock of the $83.09 billion insurance company has appreciated by 9.96%. Even though American International Group Inc (NYSE:AIG) was among a number of big finance players who were severely hurt during the sub-prime collapse, these days the company strives to improve its balance sheet through deleveraging, and financial performance through operating margins. After a 42% increase to its own holdings in the company, Baupost Group finished the first three months of the year with a 1.25 million-share position worth $27.45 million.
Following the increase of its position by a hefty 1,060% in Cheniere Energy Inc (NYSEMKT: LNG), the total amount of shares of the company in Perry Capital’s portfolio equals 2.60 million, with the stake being valued at $201.15 million. Cheniere Energy Inc (NYSEMKT: LNG) is engaged in the extraction and sale of liquefied natural gas. Over the last year the stock has been trading sideways, mostly because of negative natural gas price development. However, analysts believe that the fair price of the shares should be around $90.33 versus the $68.94 where it stands today, representing significant upside. The main reason for such huge upside potential lies in the fact that the company is about to become the first liquefied natural gas explorer in the U.S, by the end of 2015. Most hedge funds realize that and are actively preparing by building up their inventories of Cheniere Energy Inc (NYSEMKT: LNG)’s shares. Still, Baupost Group kept its position unchanged during the first three months of the year, as already loaded with them as it was. At the end of March, it held around 13.81 million shares with a market value of $1.07 billion.