Christian Leone‘s Luxor Capital Group is an investment advisory firm with an estimated $11.5 billion in assets under management. The fund was founded in 2002 and boasts a diversified portfolio of global investments. The hedge fund is known for its value-based strategy in selecting its stocks. In addition, the fund is also known for its interest in distressed companies whose value can be unlocked so as to reposition them into becoming profitable companies and investments. The fund’s latest 13F filing showed that it had a public equity portfolio value of $6.19 billion, representing a $1.23 billion increase over the end of 2014 reporting period. While the fund had stakes in a variety of sectors, this article focuses on its top tech picks, which are Yahoo! Inc. (NASDAQ:YHOO), IAC/InterActiveCorp (NASDAQ:IACI), and Baidu Inc (ADR) (NASDAQ:BIDU).
We follow hedge funds like Luxor Capital Group because our research has shown that their stock picks historically managed to generate alpha even though the filings are up to 45-days delayed. We used a 60-day delay in our back tests to be on the safe side and our research showed that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012, during which time they have returned 142%, outperforming the S&P 500 ETF by nearly 84 percentage points (see more details here).
With that in mind, let’s first consider Yahoo! Inc. (NASDAQ:YHOO), which is one of the most popular stocks in our database. At the end of the first quarter of 2015, Luxor Capital Group held a total of 10.64 million shares of the company with a market value of $472.59 million, representing an increase of 1.42 million shares compared to the previous quarter. The Sunnyvale, California-based multinational company mainly provides web-based services, including search engine, web portal, and microblogging. Yahoo! Inc. (NASDAQ:YHOO) has been facing fierce competition from other online giants such as Google Inc (NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB) for online and mobile ad revenue, and has entered the fray ready to fight. Towards that objective, the company undertook a far-reaching restructuring of its top management and has recently gone into an acquisition spree to reposition itself among the top tech companies. Among other activities, the company is set to spin-off its Alibaba Group Holding Ltd (NYSE:BABA) stake and is also under pressure from activist investor Jeffrey Smith to spin-off its stake in Yahoo! Japan.
In terms of performance, Yahoo! Inc reported earnings per share of $0.70 for the quarter ended March 31, meeting Wall Street analysts’ estimates. Looking ahead, 27 analysts have given the stock a “Buy” recommendation, although the stock’s expected earnings per share is only $0.50 for the current quarter. A total of 104 hedge funds out of the more than 700 we track had stakes in the stock at the end of the first quarter. The hedge funds had aggregate holdings of $6.48 billion. Some of these shareholders were billionaire Daniel S. Och‘s OZ Management, D. E. Shaw, founded by billionaire billionaire D. E. Shaw, and Jeffrey Altman‘s Owl Creek Asset Management.