Steven Tananbaum has earned a reputation as a maverick investor by betting on bonds of companies that are in trouble. However, few people know that his hedge fund GoldenTree Asset Management also invests in equities, albeit on a very small scale. According to GoldenTree Asset Management’s latest 13F filing, its US equity portfolio was worth $410.37 million at the end of March, which was only 1.7% of the $24 billion in assets that the fund currently manages. The filing also revealed that GoldenTree’s portfolio consisted of only 19 stocks and that its top ten equity holdings amassed over 90% of the value of its portfolio at the end of the first quarter. In this article, we will take a look at the five equities added to the portfolio of Mr. Tananbaum’s fund and try to uncover why he might be bullish on them.
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 KKR & Co. L.P. (NYSE:KKR)
– Shares Owned by GoldenTree Asset Management (as of March 31): 130,723
– Value of Holding (as of March 31): $1.92 million
Let’s start with KKR & Co. L.P. (NYSE:KKR), which in terms of value was GoldenTree’s smallest equity position at the end of the first quarter. Shares of the private equity giant have fallen by over 40% in the past 12 months, with nearly 12.5% of those declines coming this year. The large decline has significantly boosted the company’s annual dividend yield, which now stands very close to 8%. In March, the company’s recently-issued preferred stock started trading on the New York Stock Exchange under the symbol ‘KKR-A’. Since its debut, the preferred stock has appreciated by over 3%. Legendary short seller Jim Chanos‘ Kynikos also initiated a stake in KKR & Co. L.P. (NYSE:KKR) during the first quarter; it purchased 326,958 shares of the company.
#4 CDW Corp (NASDAQ:CDW)
– Shares Owned by GoldenTree Asset Management (as of March 31): 180,512
– Value of Holding (as of March 31): $7.5 million
CDW Corp (NASDAQ:CDW)’s stock has been on a long-term uptrend ever since the information technology company made its stock market debut in June 2013. Though it is currently trading down marginally in 2016, it has appreciated by over 150% since it was first listed. On May 4, the company reported its first quarter results, declaring EPS of $0.67 on revenue of $3.10 billion, topping the EPS of $0.56 and revenue of $2.76 billion that it pulled in for the same quarter of last year. On May 19, analysts at RBC Capital reiterated their ‘Buy’ rating and $46 price target on the stock, which represents potential upside of 7.8%. Hedge funds that reduced their stakes in the company during the first quarter included billionaire Israel Englander‘s Millennium Management, which brought its holding down by 35% to just under 800,000 shares.
The top three additions to GoldenTree’s equity portfolio are uncovered on the next page.