British billionaire David Harding, co-founder of Man AHL, is popular for using quantitative investment strategies backed by scientific research to make trading decisions. The business has a team of scientists tasked with fostering a research environment heavily dependent on statistical and quantitative research to facilitate informed trading decisions.
Harding is also the founder of Winton Capital Management which has been operating since 1997. The fund has $1.4 billion in managed securities as of the end of 2020. It invests in global markets using mathematical and statistical inference as its compass. Unfortunately, the fund has been down almost 80% within the last 5 years, and the disrupted markets in 2020 due to the coronavirus further reinforced the downward spiral.
Winton Capital was accustomed to double-digit growth before the financial crisis of 2008. It lost roughly $12.5 billion from assets under its management in 2020, equivalent to almost 20.5% of its portfolio. The pandemic made 2020 the worst year for the company considering the huge losses.
Winton Capital lost roughly 16% of its diversified futures holdings in 2020, but some areas showed improvement. For example, the $650 million China investment fund rallied by 25%. Its $300 million Trend fund also remained bullish with a 7.4% gain. Mr. Harding, however, described the fund’s overall performance as disappointing due to the substantial decline in asset value courtesy of the unfavorable economic environment.
Most of the losses that Winton Capital suffered in 2020 were from currencies and equities, which were coincidentally hugely impacted by the coronavirus and the economic decline that ensued. Its data-driven investments were severely exposed to the uncertainties and instabilities that arose due to the affected global economy.
Winton Capital acquired 175 new stocks and increased its stake in 68 stocks. It offloaded 327 stocks and trimmed its holdings in 1052 stocks. The fund’s market value in Q4 2020 was $1.39 billion, which was significantly lower than the $3.08 billion in the previous quarter.
Winton Capital’s Latest Investments
The hedge fund invested in multiple industrial segments in Q4 2020. Finance took up the lion’s share at 22.98%, followed by healthcare at 14.38%. Other segments include information technology at 14.26%, consumer discretionary, which took up 12.81%, industrials at 9.45%, consumer staples which accounted for 5.07%, and communications at 4.17%.
Top stocks and ETFs that had a sizable contribution to Winton portfolio
The hedge fund’s top 10 holdings account for 17.00% of its entire portfolio. Winton Capital has invested in some of the best high yield dividend stocks from different segments, as well as ETFs. Berkshire Hathaway Inc had the biggest contribution out of any single stock at 5.32%, followed by SPDR S&P Financial ETF at 2.30%. The SPDR Consumer Discretionary Select Sector ETF was a close third at 1.70%. The SPDR S&P Technology ETF accounted for 1.57% of the portfolio, SPDR S&P Health Care ETF contributed 1.50%, while Apple missed the top 5, but it did contribute a sizable 1.07%. SPDR S&P Industrial ETF accounted for 1%, Varian Medical Systems Inc. at 0.95%, Dow Inc. at 0.8%, and CME Group Inc. at 0.79%.
David Harding of Winton Capital Management
Let’s start our list of the 10 high yield dividend stocks to buy according to billionaire David Harding.
10. Ellington Financial Inc. (NYSE: EFC)
No. of Hedge Fund Holders: 9
Dividend Yield: 9.3%
Ellington Financial is specialty finance company that deals with acquisition and management of mortgage assets to deliver healthy and risk-adjusted returns for its shareholders. Its portfolio largely consists of agency and non-agency residential securities that are mortgage-backed. It also invests in other areas, including asset-backed securities, mortgage-backed derivatives, and mortgage-backed securities.
Ellington Financial’s net income in Q4 was $63.2 million, or $1.44 per share, while its net income for the full year was $17.2 million, or $0.39 per share. Its core earnings amounted to $16.0 million, equivalent to $0.37 per share. Cash and cash equivalents as of December 31 amounted to $111.6 million.
The company declared a $0.10 per share dividend on February 5, 2021. Ellington’s estimated book value as of March 31, 2021, was $18.16. While its monthly dividend payable on April 26, 2021, was $0.10 per share.
9. Chimera Investment Corporation (NYSE: CIM)
No. of Hedge Fund Holders: 16
Dividend Yield: 9.48%
This is a New York-based international REIT that was launched in 2007. It mainly deals with mortgage-related securities, asset securitization, and residential mortgage loans. The REIT has 16 hedge fund investors owning its stock, led by Omega Advisors, which owns 3.4 million Chimera shares.
The company in March sponsored CIM 2021-NR2, a seasoned non-REMIC eligible residential mortgage loan securitization valued at $240.4 million, and CIM 2021-R2, a seasoned reperforming residential mortgage loans securitization valued at $1.5 billion. Chimera Investment Corp’s board announced a cash dividend of $0.30 per common share in Q1, a healthy dividend payout that is enough to secure a spot in David Harding’s list of the best high yield dividend stocks.
The REIT reported a $0.49 per share GAAP net income in Q4 2020. Its core earnings in Q4 2020 were $0.29 per share and $1.46 for the full year. GAAP net income for the full year was $0.07 per share. Chimera’s book value in Q4 2020 was $12.36 per share.
8. ARMOUR Residential REIT, Inc. (NYSE: ARR)
No. of Hedge Fund Holders: 13
Dividend Yield: 9.86%
This REIT has been around since 2008, and it only deals with mortgage-backed residential securities guaranteed by a U.S government-sponsored entity such as Federal Home Loan Mortgage Corporation (Freddie Mac) or Federal National Mortgage Association (Fannie Mae). Sometimes the REIT invests in money-market instruments, U.S treasury securities, and interest-only securities. 13 hedge funds have ARMOUR Residential Reit in their portfolio. The company’s latest dividend pay-out was $0.10 per share.
Armour reported a core income of $23.3 million in Q4 2020, equivalent to $0.32 per share. The company’s comprehensive income for the same quarterly period was $60.2 million, equivalent to $0.89 per common share. This means that the company’s stockholder’s equity-backed annualized return was 27%. The company’s book value per common share went up from $11.74 by September 30 to $12.32 by December 31.
7. Annaly Capital Management, Inc. (NYSE: NLY)
No. of Hedge Fund Holders: 21
Dividend Yield: 9.93%
This self-managed and self-advised REIT controls a real estate portfolio that includes collateralized mortgage obligations, mortgage pass-through certificates, and agency callable debentures, among other mortgage-backed obligations. 24 hedge funds own the company’s stock.
Anally signed a definitive agreement with Slate Asset Management L.P. to sell its commercial real estate unit for $2.33 billion. The company announced its Q1 2021 dividend at $0.22 per common share, making it one of the best high yield dividend stocks in David Harding’s portfolio. The company appointed Eric A. Reeves as its Agnico-Eagle Mines, Ltd director. Anally stock posted a whopping 49.91% return over the past one year.
6. OneMain Holdings Inc (NYSE: OMF)
No. of Hedge Fund Holders: 30
Dividend Yield: 3.9%
This is an Indiana-based financial services holding company whose subsidiaries provide service loans, personal loans, as well as credit and non-credit insurance. The company has 30 hedge funds that own its stock as of the end of the fourth quarter.
OneMain Holdings’ pretax income in Q4 2020 was $476 million, while its net income during the same period was 359 million. It performed significantly better considering its pretax and net income figures were $344 million and $261 million respectively in Q4 2019. Its Q4 2020 EPS per diluted share was $2.67, which represents a notable improvement from the $1.91 earnings per diluted share reported in Q4 2019.
Here is what Miller Value Partners has to say about OneMain Holdings, Inc. in their Q4 2020 investor letter:
“OneMain Holdings (OMF) was the top contributor over the quarter, advancing 56.0% after reporting Q3 Earnings Per Share (EPS) of $2.19, well above consensus of $1.26 and the quarterly dividend, which was increased 36% to $0.45/share (3.5% annualized yield and 11.5% Trailing Twelve Month (TTM) yield). Net interest income of $836M beat estimates of $778M, implying a 24.3% asset yield and 18.7% net interest margin. Origination volumes increased 41% sequentially to $2.9Bn on continued strength in digital while end-of-period net receivables were flat at $17.8Bn. Credit quality remains excellent with net charge-offs of 5.2%, the lowest level since 3Q 2015. Management guided to year-end receivables of $18.1Bn, net charge-offs of 5.6% (from 5.8%-6.0%), and net leverage of 4.3x-4.5x.”
5. Orchid Island Capital, Inc. (NYSE: ORC)
No. of Hedge Fund Holders: 10
Dividend Yield: 14.50%
This finance firm specializes in residential mortgage-backed securities (RMBS), including structured agency RMBS and Agency RMBS. 10 hedge funds owned Orchid Island Capital shares in Q4 2020.
Orchid generated $16.5 million in net income in Q4 2020, equivalent to $0.23 per common share. The company announced a dividend of $0.195 in Q4 2020 and a full year 2020 dividend of $0.79 per share. The impressive dividend payout makes it one of the best high yield dividend stocks on Harding’s portfolio.
Orchid announced a public offering for 8 million common shares, and the sale is expected to generate $44.4 million. The investment firm will use the proceeds from the public offering to cover some general corporate expenses while the rest of the funds will be invested in Agency RMBS.
4. Kosmos Energy Ltd (NYSE: KOS)
No. of Hedge Fund Holders: 10
Dividend Yield: 6.8%
The company deals with the exploration and production of oil and natural gas in regions of Africa that are under-explored. Some of the countries where it operates include Morocco, Cameroon, and Ghana. 10 hedge funds had invested in Kosmos Energy in Q4 2020.
Kosmos Energy has been uniquely positioning itself to meet the growing demand for LNG in developing economies. Kosmos Energy reported a net income of $8 million, equivalent to $0.02 per diluted share in Q4 2020. It had an adjusted net loss of $49 million or $0.12 per diluted share for the same period. The company’s Q4 revenue was $274 million, or $41.84 per BOE.
Goldman Sachs raised the price target for the company’s stock from $2.40 to $4.50 and upgraded the stock from neutral to a ‘’buy.’’ The investment bank justified the upgraded rating by stating that the company’s LNG asset called Tortue is underappreciated as far as its value is concerned. This underappreciation falls in line with David Harding’s criteria for the best high yield dividend stocks. Neil Mehta, an analyst at Goldman Sachs, revealed that the revised update was courtesy of positive expectations of free cash flow in the second half of 2021 and well into 2022. Oil recovery and improving volumes in Ghana highlight Tortue’s attractive nature as a long-term investment.
3. Bed Bath & Beyond Inc. (NASDAQ: BBBY)
No. of Hedge Fund Holders: 33
Dividend Yield: 2.56%
This is a retail company that owns stores under multiple brand names, including Bed Bath & Beyond (BBB), buybuy BABY, Harmon and Harmon Face Values (Harmon), and Christmas Tree Shops (CTS). The brands sell various products, including food, furniture, apparel, home furnishings, baby products, beauty products, and more. 33 hedge funds owned BBB stock in Q4 2020, including D E Shaw, which had more than 6 million shares, making it BBB’s largest hedge fund shareholder. BBY is in our list of best dividend stocks of David Harding because of the consistent dividend hikes offered by the company offered the last several years.
BBB expects its Q1 revenue to grow by more than 40% to around $1.83 billion, which still lower than the consensus estimates of $1.92 billion. The company expects its full-year 2021 revenue to range between $8.0 billion to $8.2 billion. CFO recently acquired 20,000 common shares of BBB, increasing its stake in the company to 300,000 shares. Demand for products in its industrial segment and the anticipated revenue growth are among the reasons why BBB is among the best high yield dividend stocks according to David Harding.
2. Park Hotels & Resorts Inc. (NYSE: PK)
No. of Hedge Fund Holders: 13
Dividend Yield: 8.27%
It is one of the top lodging REITs, and it boasts of an extensive portfolio of resorts and hotels. The portfolio includes 60 premium resorts and hotels with more than 33,000 rooms in the city center. Of 13 hedge funds holding this stock includes Citadel Investment Group, which had more than 1.6 million shares in Park hotels & resorts Inc.
Citadel Investment Group had more than 1.6 million shares of the company, making it the biggest hedge fund investor in this company.
The hotel industry has been gradually recovering from the pandemic impact. However, the company might not be as solvent as expected, a situation that could turn problematic in the future. The recovery will be slow considering the pandemic’s extended presence. Individuals and businesses have therefore been exercising caution by traveling less.
The REIT reported a 96% decline in its Q2 revenue, raising concerns about its financial instability. If the pandemic continues for an extended duration of time, the hotel industry might be severely affected. Many hotels might not be able to restart their operations, and employees will lose their jobs.
This is what Mason Hawkins said about Park Hotels & Resorts:
“Park Hotels and Resorts (-68%, -2.82%), was another top detractor. Park saw its occupancy levels hit unprecedented lows due to travel reduction and conference cancellations as a result of COVID-19. Park responded by closing all or parts of the majority of its owned hotels. We have evaluated the company’s debt (the next maturity is $700 million at the end of 2021) and liquidity (about $1.4 billion) and believe it will survive the crisis. CEO Tom Baltimore purchased shares personally after the stock’s sharp decline but still well above where it trades. The stock was deeply discounted at quarter end, but our appraisal of the value has declined with the loss of cash-flow. As we said above, it is in the third bucket, and we did not add during the quarter. Park trades at an extremely wide discount to both relatively stable replacement cost (it trades at less than 20% of that metric) and a fast moving value, providing a large margin of safety at today’s low price.”
1. Amplify Energy Corp. (NYSE: AMPY)
No. of Hedge Fund Holders: 9
Dividend Yield: 16%
Amplify deals with oil and gas exploration services such as managing exploration properties on behalf of U.S companies that own or operate them. 9 hedge funds owned the company’s stock as per the latest quarter, and Avenue Capital led the pack courtesy of its 2.56 million shares in Amplify Energy.
Amplify’s latest forecasts suggest that its positive cash flow from $60 WTI oil will amount to $25 million in 2021. The company’s positive cash flow might reach $50 million in 2022, with oil prices in their mid-50s, which paints a good picture of why it is in the list of best high yield dividend stocks according to David Harding. Poor fiscal performance from the oil production companies and price volatility in the energy industry have been a drawback for Amplify.
Recovering oil prices provided a huge boost to the company’s stock, as well as the Midstates merger. Amplify has been developing oil reserves for the last 13 years, but it still remains undervalued.
You can also take a peek at Billionaire Ken Fisher’s Top 5 High Dividend Stock Picks and Balaji Srinivasan’s Top 5 Investments, Portfolio and Ideas.
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Disclosure: None. 10 Best High Yield Dividend Stocks to Buy According to Billionaire David Harding is originally published on Insider Monkey.
