Kyle Bass Makes Huge Bet Against McDonald’s, Sells Off Clovis

Although Kyle Bass of Hayman Advisors is famous for his macro trading such as shorting Japanese bonds or the housing market, his fund also places equity bets too. Given Bass’ exemplary performance since inception, it is often worth it to pay attention to Bass’ latest moves. Given those facts, Insider Monkey has compiled a list Bass’ equity portfolio changes in the second quarter, based on the data from its latest 13F filing.

In this article, we take a closer look at Bass’ moves in McDonald’s Corporation (NYSE:MCD), NMI Holdings Inc (NASDAQ:NMIH), Eco-Stim Energy Solutions Inc (NASDAQ:ESES), and Clovis Oncology Inc (NASDAQ:CLVS) that took place between April and June.

While there are many metrics that investors can assess in the investment process, the hedge fund sentiment is something that is often overlooked. However, hedge funds and other institutional investors allocate significant resources while making their bets and their long-term focus makes them the perfect investors to emulate. This is supported by our research, which determined that following the small-cap stocks that hedge funds are collectively bullish on can help a smaller investor to beat the S&P 500 by around 95 basis points per month (see the details here).

Bass Bets Against McDonald’s

According to SEC filings, Hayman Advisors bet against McDonald’s Corporation (NYSE:MCD) through derivatives in the second quarter. Between the period of March 31 and June 30, Bass’ fund established a new ‘Put’ position underlying 750,000 shares, worth $90.255 million at the end of June. That ‘Put’ position comprised 71.89% of Hayman Capital’s equity portfolio. Assuming that the decay cost is minimal, Hayman’s short bet is currently paying off, as McDonald’s shares are about $5 lower than what they were on June 30. Part of the reason for the weakness was McDonald’s release of soft second-quarter earnings, which showed that the chain’s same store sales hadn’t grown as fast as some analysts had expected. Other hedge funds were also less optimistic on McDonald’s in the second quarter. Of the around 750 elite funds that we track, 63 owned shares of McDonald’s Corporation (NYSE:MCD) at the end of June, down by 20 funds from the end of March.

Hayman Cuts Holdings in NMI

Hayman Advisors was less bullish on NMI Holdings Inc (NASDAQ:NMIH) during the second quarter, as it trimmed its stake by 27%, or 2.058 million shares, to a holding of 5.312 million shares held at the end of June. The stake was worth $29.11 million and amassed roughly 23.19% of Bass’ equity portfolio at the end of the second quarter. In hindsight, Bass was fortunate to keep most of his stake in the stock, as NMI Holdings has done nothing but rally since June 30. Shares of the private mortgage guaranty insurer have surged due to industry consolidation, a strong housing market, and firmer insurance prices. A total of 17 funds from our database had a bullish position in NMI Holdings Inc (NASDAQ:NMIH) at the end of the second quarter, down by three from a quarter earlier.

We analyze Bass’ movements in two more companies on the next page.

Bass Maintains Eco-Stim 

Unlike what the fund did to McDonald’s and NMI, Hayman Advisors held steady its position in Eco-Stim Energy Solutions Inc (NASDAQ:ESES) at 2.13 million shares, which were worth around $6.177 million at the end of June. Eco-Stim accounted for 4.92% of Bass’ fund’s portfolio at the end of the second quarter. Given that Kyle Bass has strong Texas roots, it’s not surprising that he would own shares of companies in the energy sector, which in Eco-Stim’s case relates to oil services. Given Eco-Stim’s nano-cap valuation of slightly over $30 million, the company has largely flown under the radar of Wall Street and hasn’t rallied like other oil service stocks have. Given its fundamentals, Eco-Stim will need higher WTI/more contract wins to do well.

Bass Sells Out of Clovis 

Kyle Bass sold out its stake in Clovis Oncology Inc (NASDAQ:CLVS) in the second quarter, saying good bye to 100,000 shares it had held earlier. Although Bass was originally a bull on the stock, saying at one point that it was worth $45 per share, the fund evidently changed its mind and missed out on the big rally after June 30. Traders are now looking forward to the FDA’s decision on Clovis’ rucaparib for the potential treatment of ovarian cancer. The PDUFA date for the drug is Feb 23, 2017. At the end of June, 21 funds from our database had a bullish position in Clovis Oncology Inc (NASDAQ:CLVS), compared to 24 funds a quarter earlier.

Disclosure: none