Highfields Capital Management, founded by Jonathon Jacobson and Richard Grubman in 1998, is one of the titans in the hedge fund industry. Because of good stock picking and in depth research, Highfields has consistently outperformed its peers and had an equity portfolio value of over $11 billion as of September 30. Given that funds like Highfield outperform the indexes on a risk adjusted basis, let’s take a closer look at Highfields’ top picks, which include McDonald’s Corporation (NYSE:MCD), CBS Corporation (NYSE:CBS), Microsoft Corporation (NASDAQ:MSFT), Franklin Resources, Inc. (NYSE:BEN), and E I Du Pont De Nemours And Co (NYSE:DD).
We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.
#5 E I Du Pont De Nemours And Co (NYSE:DD)
Shares held (as of September 30): 11.45 million
Total Value (as of September 30): $551.88 million
Percent of Portfolio (as of September 30): 4.87%
Highfields Capital Management upped its stake in E I Du Pont De Nemours And Co (NYSE:DD) by more than sevenfold to 11.45 million shares in the third quarter. Although the shares of the chemical company have inched down by 1% year-to-date because of the strong dollar and weak-macroeconomic environment, DD has rallied strongly from their October lows. The company is cutting costs and is considering buying/selling seed and pesticide businesses to unlock more value for shareholders. Any M&A or joint venture transaction that leads to higher EPS will be welcome news for shareholders. Of the around 730 elite funds we track, 41 funds were long the company at the end of the third quarter, down slightly from the 46 funds that owned shares of DD at the end of the second quarter.
#4 Franklin Resources, Inc. (NYSE:BEN)
Shares held (as of September 30): 17.27 million
Total Value (as of September 30): $643.31 million
Percent of Portfolio (as of September 30): 5.68%
Franklin Resources, Inc. (NYSE:BEN) had a tough fiscal fourth quarter, as the company missed EPS expectations by $0.18 and revenue estimates by $30 million. Total assets under management declined by 11% year-over-year, mainly due to market depreciation. It’s not all bad news for the asset management company, however. Its board has also authorized to buy back 30 million shares, which could shrink the float by 8% at current prices. The stock also trades at a reasonable 12.6 times forward earnings. Along with Highfields, Jim Simons’ Renaissance Technologies is a believer in the company, with a holding of over 1.5 million shares at the end of September.