Hedge funds have started submitting their 13F filings with the SEC, offering other investors a chance to look at their equity holdings as of the end of the first quarter. One such fund is Stephen J. Errico‘s New York-based Locust Wood Capital Advisers.
After a successful investment career at Lehman Brothers, Paine Webber and Morgan Stanley, Errico set up his own shop in 2002 with $29 million in capital. The fund’s regulatory assets under management currently exceed $900 million with a market value of its equity portfolio standing at $792.07 million at the end of the first quarter. The finance sector contributed 29% of the holdings while consumer discretionary was a close second representing 27% of the above value. As is usually the case with Locust, the turnover ratio of the fund was rather high at 55.56%. Some of the fund’s most prominent moves in the first quarter involved its stakes in Valeant Pharmaceuticals Intl Inc (NYSE:VRX), Apple Inc. (NASDAQ:AAPL), McDonald’s Corporation (NYSE:MCD), JPMorgan Chase & Co. (NYSE:JPM), and GlaxoSmithKline plc (ADR) (NYSE:GSK).
At Insider Monkey we follow hedge funds because our research has shown that their stock picks historically managed to generate alpha even though the filings are 45 days delayed. We used a 60-day delay in our back tests to be on the safe side. Our research has shown 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. These stocks returned 132% over the last 2.5 years, outperforming the S&P 500 ETF by nearly 80 percentage points (see more details here).
After a 42% increase on the quarter, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) represents the fund’s largest holding with some 297,700 shares valued at $59.14 million. Valeant Pharmaceuticals Intl Inc (NYSE:VRX) recently acquired Salix Pharmaceuticals after increasing its previous bid, which brought the enterprise value of the transaction at $15.8 billion. As far as the significance of this deal for Valeant is concerned, the jackpot is dependant of the FDA’s clearance of Salix’s drug for irritable bowel syndrome, which could increase Valeant Pharmaceuticals Intl Inc (NYSE:VRX)’s Earnings per Share (EPS) by more than 20% by the end of 2016. Among the funds that we track, 102 had invested $14.08 billion in Valeant Pharmaceuticals Intl Inc (NYSE:VRX) at the end of the fourth quarter as compared to 90 funds with $13.30 billion in the previous quarter, including Jeffrey Ubben’s ValueAct Capital, which held 19.39 million shares valued at $2.77 billion.
Amid a strong performance of the stock, Locust Wood decided to trim its stake in Apple Inc. (NASDAQ:AAPL) by 24% during the first quarter to 129,652 shares valued at $16.13 million. Although the tech giant’s new gadget Apple Watch is not going to make an entrance in most stores by June, its shipments have begun today. With regards to Apple Inc. (NASDAQ:AAPL)’s second new adventure in the technology world Apple Pay, it has been reported that the company is negotiating with Canadian banks to launch its payment platform in the country sometime in November. Famous activist investor, Carl Icahn‘s Icahn Capital is the largest investor in Apple Inc. (NASDAQ:AAPL), according to our database, with some 52.76 million shares valued at $5.82 billion at the end of 2014.
A total of 86,710 additional shares of McDonald’s Corporation (NYSE:MCD) have been acquired by Locust Wood during the first quarter to put the total stake to 307,500 shares valued at $29.96 million. The ailing fast food retailer has shown some strength this year as the stock is up by 4.27% year to date. Although the company’s EPS of $0.84 was below the estimate of $1.06 for the first quarter, revenues of $5.96 billion were in line with expectations. An attractive feature of McDonald’s Corporation (NYSE:MCD)’s stock is its dividend yield, which has landed the company a spot on our list of the top five companies with a stable dividend yield. Mason Hawkins of Southeastern Asset Management held about 11.92 million shares of McDonald’s Corporation (NYSE:MCD) valued at $1.12 billion at the end of the fourth quarter of last year.
Moving on to JPMorgan Chase & Co. (NYSE:JPM), Ericco’s bet in the finance sector, whose stock is slightly down by 0.06% year to date. The financial holding company saw an increase in its revenue in the first quarter owing to a greater contribution from Investment Banking fees and also the strong growth from the core loan segment. Among the billionaires that we track, 10 had investments totaling $1.24 billion in JPMorgan Chase & Co. (NYSE:JPM) at the end of 2014. One of them is Ken Fisher‘s Fisher Asset Management, which held 13.52 million shares valued at $846.14 million.
Lastly, Locust Wood initiated a stake in GlaxoSmithKline plc (ADR) (NYSE:GSK), the investor adding 401,400 shares valued at $18.53 million. Based on interim results of a mid-stage trial in the Ebola stricken Liberia, GlaxoSmithKline plc (ADR) (NYSE:GSK)’s vaccine for the epidemic appears to be safe. Jim Simmons’ Renaissance Technologies trimmed its stake in GlaxoSmithKline plc (ADR) (NYSE:GSK) during the fourth quarter to 6 million shares valued at $256.73 million.
Disclosure: None
