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Charles Davidson Bolsters Portfolio With These New Stock Picks

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With the latest round of 13F filings underway, we decided to take a closer look at the new additions to the equity portfolio of Charles Davidson‘s Wexford Capital. The fund initiated new positions in 29 companies, the most prominent of which were Energy Transfer Partners LP (NYSE:ETP), Magnachip Semiconductor Corp (NYSE:MX), and Synchrony Financial (NYSE:SYF). The market value of Wexford Capital’s public equity portfolio rose to $374.50 million by the end of June from $343.26 million a quarter earlier, with the energy sector contributing about 38% to this value. Davidson received his MBA from the University of California, Los Angeles (UCLA) and went on to establish Wexford Capital in 1994. The Greenwich, Connecticut-based fund currently has about $5 billion in regulatory assets under its management and manages three hedge funds, including the opportunistic macro Wexford Spectrum Fund, the multi-strategy, credit-oriented Wexford Credit Opportunities Fund, and the energy, natural resources, and industrials-focused Wexford Catalyst Fund, in addition to a series of private equity funds.

Charles Davidson - Wexford Capital

Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 123% over the last 35 months and outperformed the S&P 500 Index by 65 percentage points (see the details here).

Charles Davidson
Charles Davidson
Wexford Capital

Wexford’s largest new position in Energy Transfer Partners LP (NYSE:ETP) comprises some 368,800 shares valued at $19.25 million and represents 5.14% of the fund’s portfolio. The $25.29 billion energy company’s stock price has been in dire straits of late, falling by more than 24% year-to-date while the Oil & Gas Midstream industry has risen by nearly 2% during the same period. Although Energy Transfer Partners LP (NYSE:ETP) managed to beat the bottom line estimates for its second quarter financial results the company failed to deliver on the top line front. Second quarter EBITDA also rose significantly to $1.49 billion, an increase of $95 million compared to the same quarter a year ago. Among the hedge funds that we track, Jim Simons‘ Renaissance Technologies is the largest shareholder of Energy Transfer Partners LP (NYSE:ETP), holding some 1.28 million shares valued at $71.09 million as of March 31.

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