Amid massive money exodus, losses and scandals, average readers tend to think that hedge funds are bad stock pickers, but the reality is opposite of this.There were 659 hedge funds in our system whose 13F portfolios on June 30 consisted of at least 5 long positions in billion-dollar companies. Of those 659 funds, an impressive 627 of them delivered positive returns during the third-quarter from their long positions in those stocks, based on the size of those positions on June 30. All told, their long picks in billion-dollar companies averaged 8.3% returns for the quarter, well above the S&P 500 ETFs’ 3.3% figure. Nonetheless, hedge funds continue to disappoint their investors for the most part, as redemptions have hit the industry hard of late. That can be chalked up to their high fees and the underperformance on the short-side of their portfolios, which provide downside protection but have dragged down overall returns. We recommend investors consider hedge funds’ long stock picks for their market-beating potential and will share four of them in this article, which were in the portfolio of Serengeti Asset Management on June 30. These picks include Red Rock Resorts Inc(NASDAQ:RRR), Irsa Inversiones y Rprsntcins SA (ADR) (NYSE:IRS), Fortress Investment Group LLC (NYSE:FIG), and Pampa Energia S.A. (ADR) (NYSE:PAM).
Serengeti Asset Management, founded in 2007, is a New York-based investment firm run by Jody Lanasa. The fund manages a $463.54 public equity portfolio as of June 30. This fund caught our attention recently, as its stock picks returned 12.53% when looking at its 12 long positions in companies having a market cap of at least $1 billion (we filter out micro-cap stocks as they are overly volatile). We believe that investors should pay attention to hedge funds’ top picks for a chance to beat the market like Lanasa’s stock picks did in Q3, so let’s have a look at those aforementioned picks and see how they’ve performed.
Serengeti Asset Management acquired 1.61 million Class A shares of Red Rock Resorts Inc (NASDAQ:RRR) in the second quarter. The total value of this stake was about $33.63 million on June 30. The investment was useful as the stock returned a 7.80% in the third quarter. A total of 21 funds in our database held stakes in Red Rock Resorts, its first quarter as a publicly traded company. Notable among these funds were Highline Capital Management, Diamond Hill Capital, and Marshall Wace LLP.
Serengeti Asset Management lowered its stake in Irsa Inversiones y Rprsntcins SA (ADR) (NYSE:IRS) by 10% in the second quarter, ending the period with 1.3 million shares of the company, having an aggregate value of about $21.85 million. The stock returned 13% during the third quarter and has gained over 40% this year. Irsa Inversiones y Rprsntcins SA (ADR) (NYSE:IRS) was held by 14 of the hedge funds in our database on June 30, among which Serengeti had the largest position. Trailing Serengeti Asset Management was FinePoint Capital, which amassed a stake valued at $19.3 million. Autonomy Capital, Elliott Management, and 683 Capital Partners also held valuable positions in the company.
We’ll check out two more of the fund’s stock picks on the next page.