There were 659 hedge funds in our system whose 13F portfolios on June 30 consisted of at least five 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 John W. Moon‘s Moon Capital on June 30, including Delphi Automotive PLC (NYSE:DLPH), Tempur Sealy International Inc (NYSE:TPX), eBay Inc (NASDAQ:EBAY), and Fidelity National Financial Inc (NYSE:FNFV).
Moon Capital had an equity portfolio valued at $258.81 million at the end of the second quarter. Out of 22 holdings in companies that had a market cap of at least $1 billion at the end of June, the fund’s weighted average return from those positions amounted to 15.42%. Keep in mind though, that our calculations are different from the fund’s actual returns, since we don’t include positions in small-cap companies, short positions, and some other instruments. Nevertheless, our methodology is quite helpful when it comes to assessing the fund’s investment expertise.
That being said, let’s see what did fund’s investment moves in the second quarter bring back in the third quarter, by analyzing its positions in the aforementioned four companies.
Let’s begin with a manufacturer of vehicle components, Delphi Automotive PLC (NYSE:DLPH), which delivered a positive return of 14.4% in the third quarter. Moon Capital must have had expectations along those lines, since it raised its stake in the company by 85% in the June quarter, to 620,132 shares, which were worth $38.82 million on June 30.
Heading into the third quarter of 2016, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a climb of 3% from one quarter earlier. Among these funds, Senator Investment Group held the most valuable stake in Delphi Automotive PLC (NYSE:DLPH), which was worth $313 million at the end of the second quarter. On the second spot was Anchor Bolt Capital, which amassed $100.9 million worth of shares. Moreover, Citadel Investment Group and Two Sigma Advisors were also bullish on Delphi Automotive PLC (NYSE:DLPH).
In Tempur Sealy International Inc (NYSE:TPX), a company that produces bedding products, Moon Capital really boosted its stake, by 193%, reporting a position which amassed 8.30% of its portfolio’s value on June 30, and counted 388,400 shares valued at $21.49 million. In the following three months, the company’s shares brought a positive return of 2.6%, while on a year-to-date basis it has lost 13.34%,
Heading into the third quarter of 2016, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a 12% jump from the previous quarter. Among these funds, H Partners Management held the most valuable stake in Tempur Sealy International Inc (NYSE:TPX), which was worth $387.2 million at the end of the second quarter. On the second spot was Chieftain Capital which amassed $205.5 million worth of shares. Moreover, Discovery Capital Management, Blue Mountain Capital, and Echinus Advisors were also bullish on Tempur Sealy International Inc (NYSE:TPX).
We’ll check out two more of the fund’s stock picks on the next page.