Aristeia Capital is a Greenwich, Connecticut-based investment firm founded in 1997 by Robert Henry Lynch. As of the end of the second quarter, the fund reported $1.25 billion in managed 13F securities, well above the $861 million in holdings on March 31. In the third quarter, its picks returned a sterling 16.64%, based on the fund’s 15 long positions in companies which had a market capitalization of at least $1 billion. Among them were Yahoo! Inc. (NASDAQ:YHOO), SINA Corp (NASDAQ:SINA), Cliffs Natural Resources Inc (NYSE:CLF), and Herbalife Ltd. (NYSE:HLF), which we’ll study in this article.
It should be noted that our calculations may be different from the fund’s actual returns, as they do not factor in changes to positions during the quarter, or positions that don’t get reported on Form 13Fs, like short positions.
Why do we follow hedge funds’ stock picks? After all, investors are turning bearish on the $3 trillion hedge fund industry due to lack of returns, high fees, and insider trading scandals. However, our research shows that mimicking hedge funds’ long positions in non-microcap companies can deliver market-beating returns. For example, in the third quarter, 95% of the funds we track had positive returns from their long positions in companies valued at $1 billion or more, with average returns of 8.3%. Now then, let’s find out how Aristeia’s most important bets performed in the third quarter.
Aristeia Capital decreased its holding in Yahoo! Inc. (NASDAQ:YHOO) in the second quarter by 4%. The fund had a total of 6.4 million shares of the company at the end of June, worth about $240.63 million. Not dumping more of Yahoo’s shares proved to be positive for Aristeia, as Yahoo’s stock returned 14.7% during the third quarter. There is still some uncertainty as to what will happen with the sale of Yahoo’s internet assets to Verizon given the recent revelation of a widespread data breach in 2014. It’s possible the deal will go through under the previous terms, or that a new deal with be negotiated. The revelation of the data breach is not expected to squash the deal.
At Q2’s end, a total of 81 of the hedge funds tracked by Insider Monkey were bullish on Yahoo, down by 16% from the previous quarter. When looking at the institutional investors followed by Insider Monkey, Joshua Friedman and Mitchell Julis’ Canyon Capital Advisors has the most valuable position in Yahoo! Inc. (NASDAQ:YHOO), worth close to $697.6 million, comprising 27.7% of its total 13F portfolio. Sitting at the No. 2 spot is Owl Creek Asset Management, managed by Jeffrey Altman, which holds a $569.2 million position. Remaining hedge funds and institutional investors that are bullish encompass Jeffrey Smith’s Starboard Value LP, David Cohen and Harold Levy’s Iridian Asset Management, and Sander Gerber’s Hudson Bay Capital Management.
SINA Corp (NASDAQ:SINA) shares, which returned a hefty 42.3% in the third quarter, were added to Aristeia Capital’s portfolio in the second quarter, as the fund acquired 620,388 shares of the company valued at about $32.18 million. Platinum Asset Management held the most valuable stake in SINA Corp (NASDAQ:SINA) in our system on June 30, worth $270.3 million at the end of the second quarter. On the second spot was Hillhouse Capital Management, which amassed $73.7 million worth of shares. Moreover, Eton Park Capital and Two Sigma Advisors were also bullish on SINA Corp (NASDAQ:SINA).
We’ll check out two more of the fund’s stock picks on the next page.