We have been keeping track of 13F filings from hedge funds and other notable investors for the fourth quarter of 2012, which are due this week. 13Fs disclose many of these funds’ long equity positions in U.S. stocks as of the end of the quarter. We compile these holdings in our database and work to develop investment strategies based on the raw data; the most popular small cap stocks among hedge funds, which we named in our August newsletter, outperformed the S&P 500 by 18 percentage points between September and January (see more of the details). We also like to go through 13Fs to see what a fund manager would recommend to the broader investment community; we provide a brief overview of top picks so that investors can perform more research if they are interested. Read on for our take on five of Pine River Capital Management (a $4 billion hedge fund managed by Brian Taylor)’s largest holdings and compare them to previous filings.
One of Pine River’s largest equity holdings on the 13F was Annaly Capital Management, Inc. (NYSE:NLY), a popular real estate investment trust. Real estate investment trusts are required to distribute much of their income to shareholders in order to preserve their tax status; in the case of Annaly this has resulted in a dividend yield of over 10% going by recent dividend payments. Perhaps unsurprisingly, it is widely followed among income investors. We would note that dividend payments have been trending downward, and also that Annaly primarily invests in mortgage-backed securities and other real estate loans.
Taylor and his team cut their stake in Ocwen Financial Corporation (NYSE:OCN), but thanks to a strong performance in the stock price the $5.7 billion market cap loan servicing company still occupied a prime place in the fund’s portfolio. Ocwen is up over 160% in the last year, roughly matching the increase in net income over the same period. At a trailing P/E of 45, the stock is priced for further growth but the sell-side expects it to be achieved given the current-year P/E of only 9. Ocwen also does substantial business related to mortgage-backed securities, including subprime loans.
Pine River owned almost 3 million shares of American International Group, Inc. (NYSE:AIG). AIG had been one of the most popular stocks among hedge funds in the third quarter of 2012 (check out the full top ten list) and it remains an appealing value stock at a price-to-book ratio of 0.6. While we do think that AIG should trade at a discount to the book value of its equity, we would find a narrower discount more appropriate. Analyst expectations for this year imply that AIG is valued at 11 times this year’s earnings, so the insurance company could be considered a good value from that perspective as well.