Clint Carlson’s Carlson Capital is one of the more than 700 top hedge funds that we track at Insider Monkey as a part of our market beating small-cap strategy. That strategy, which tracks the top 15 small-cap stocks invested in collectively by those hedge funds has outperformed the market each year since its inception in August 2012. Last year, it returned 28.2%, while the S&P 500 ETF (SPY) returned 13.5% and the average hedge fund returned just 3.6% (see the details). That’s because our extensive research showed that hedge funds are much better at generating strong returns from their top small-cap picks than they are from large-cap stocks, which nonetheless get the majority of many funds’ capital, limiting their overall returns.
Unsurprisingly, the same holds true for Carlson Capital, as the fund’s top three picks, while not mega-cap stocks, all have market caps of more than $5 billion, which puts them outside the purview of our strategy. Nonetheless, we like to highlight the top picks of a variety of the funds in our database to give investors an idea of which stocks some of the best money managers are the most bullish on.
At the head of that list for Carlson Capital is KeyCorp (NYSE:KEY), a$12 billion market cap holding company for KeyBank, which provides banking and insurance services to both individuals and businesses in 12 states. Carlson Capital has a 13.66 million share position valued at $189.83 million as of the end of 2014. That makes it the second largest shareholder among the funds we track, after billionaire Ken Griffin’s Citadel Investment Group, which holds 30.19 million shares. KeyCorp (NYSE:KEY) is also one of the banking stocks insiders have been bullish on within the past six months, with two insiders reporting the acquisition of shares in October.
KeyCorp (NYSE:KEY)’s stock enjoyed a very strong 2013, rising by nearly 50%, but have posted only single digit growth since. In its most recent earnings report for the fourth quarter of 2014, KeyCorp (NYSE:KEY) succeeded in cutting costs by 2%, which resulted in earnings growth to $0.28 per common share, from $0.26 per common share during the same year-ago period. KeyCorp also increased its dividend to $0.07 per share during 2014, an 18% increase, improving the stock’s dividend yield to 1.85%.
We’ll skip over Carlson’s second, third, and fourth picks, Covidien, CareFusion, and Protective Life Corp., all of which have been purchased and delisted. Indeed, those arbitrage plays on merger targets are one of the hallmarks of Carlson’s multi-strategy approach.
Carlson’s next top position is in NRG Energy Inc (NYSE:NRG), which is also one of the top picks of James Dondero’s Highland Capital. Carlson owns around 5.62 million shares valued at $151.42 million as of the end of last year, trailing billionaire Israel Englander’s Millennium Management, which holds 6.18 million shares. Highland has the third largest long position, at 3.63 million shares, up 98% over the quarter.
Like most energy sector companies, NRG Energy Inc (NYSE:NRG) has endured a rocky run since the middle of 2014, with its stock losing 37% since then. It was also one of the top losers on April 1, falling by more than 6% after a ruling by the Federal Energy Regulatory Commission went against PJM Interconnection, with whom NRG Energy Inc (NYSE:NRG) derives some of its energy capacity. Despite that, NRG increased its dividend slightly in 2015, improving its dividend yield to 2.46%, and plans to repurchase $100 million worth of shares, taking advantage of the stock’s reduced price.
After skipping Carlson’s sixth pick Allergan, which was bought by Actavis plc (NYSE:ACT), we come to TRW Automotive Holdings Corp. (NYSE:TRW), the fund’s seventh top pick, as it has a position of 1.35 million shares valued at $138.44 million, up by 91% during the quarter. That still left it behind a number of other bullish investors, the majority of whom increased their position during the last quarter also, with that group being led by Matthew Halbower’s Pentwater Capital Management, which has a 4.85 million share position, up 13% during the fourth quarter.
After a huge two-year run from the middle of 2012 until the middle of 2014 that saw shares nearly triple in value, TRW Automotive Holdings Corp. (NYSE:TRW) has leveled off, and is actually down slightly from its peak in late July. The automotive parts, modules, and systems manufacturer had sales of $17.5 billion in 2014 and employs 65,000 people in 24 countries around the world. Though it hasn’t yet been finalized, TRW Automotive Holdings Corp. (NYSE:TRW) has also been purchased, by German car-parts supplier ZF Friedrichshafen. The merged company would be the second-largest auto parts supplier in the world.
Disclosure: None
