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Mysterious Billionaire David Abrams Reveals Top Picks; Western Union Company (WU) Retains Top Spot

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Billionaire David Abrams currently manages Abrams Capital Management LP, a Boston-based hedge fund he founded in 1999. Mr. Abrams has never been seen speaking at investment conferences or any other events open to the public, but he has generated “loud” returns for his investors over the years. The introvert hedge fund manager had worked at Seth Klarman’s Baupost Group LLC, one of the largest hedge fund vehicles in the world, before starting his own shop. Abrams Capital Management is effectively a one-man shop, as the multi-billion-dollar asset manager has only a few employees around. The firm’s investment strategy takes a value-oriented approach to investing, usually managing a concentrated portfolio for a long-term horizon without using any leverage. Abrams Capital is seen as a “quiet fund” that delivers “loud returns”, so the only way retail investors can get a glimpse into the fund’s investment strategy is by examining the firm’s quarterly 13F filings. So let’s have a look at Mr. Abrams’ five largest equity holdings as of the end of the first quarter of 2016.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

#5. Time Warner Cable Inc. (NYSE:TWC)

– Number of shares owned by Abrams Capital Management as of March 31: 661,000

– Value of Abrams Capital Management’s holding as of March 31: $135.25 Million

Abrams Capital Management owned 661,000 shares of Time Warner Cable Inc. (NYSE:TWC) at the end of the March quarter, which were valued at $135.25 million at quarter-end. This equity position did not suffer any adjustments during the first three months of the year and accounted for 6.4% of the hedge fund’s entire portfolio on March 31. Just recently, Charter Communications Inc. (NASDAQ:CHTR) announced the completion of its acquisition of Time Warner Cable and Bright House Networks LLC, which created the second-largest broadband provider in the U.S. and the third-largest pay TV provider. Time Warner Cable shareholders could choose to receive either $100 in cash and shares of New Charter Class A shares equivalent to 0.5409 shares of Charter Class A shares or $115 in cash and shares of New Charter equivalent to 0.4562 shares of Charter. The newly-formed company will have a tumultuous period ahead as it has to integrate three companies into one whole amid increased competition from online video services providers. John Armitage’s Egerton Capital Limited had 4.84 million shares of Time Warner Cable Inc. (NYSE:TWC) in its portfolio at the end of March.

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#4. Manitowoc Foodservice Inc. (NYSE:MFS)

– Number of shares owned by Abrams Capital Management as of March 31: 11.26 Million

– Value of Abrams Capital Management’s holding as of March 31: $165.90 Million

The Boston-based hedge fund reported a new position of 11.26 million shares in Manitowoc Foodservice Inc. (NYSE:MFS) through the latest round of 13Fs, which was worth $165.90 million on March 31. Earlier this year, Manitowoc Company Inc. (NYSE:MTW) completed a tax-free spin-off of its former foodservice business into an independent company called Manitowoc Foodservice, so most shares of Manitowoc Foodservice owned by Mr. Abrams were received pursuant to the spin-off. Abrams Capital owned 8.74 million shares of MTW at the beginning of the year, as revealed by a 13G filing submitted in mid-January. Manitowoc Company shareholders received one share of MFS for each share of MTW. Nonetheless, the Boston-based asset manager sold out its entire stake in Manitowoc Company by the end of the March quarter, which makes us believe Mr. Abrams and his small-sized team were mostly interested in the foodservice business rather than Manitowoc’s Cranes business. Carl Icahn’s Icahn Capital LP owns 10.58 million shares of Manitowoc Foodservice Inc. (NYSE:MFS) as of March 31.

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