Hedge Fund Manager Andrew Sandler’s Picks Dominated The Market in Q1

Sandler Capital Management’s long stock picks finished the first quarter of 2015 that ranks with the best of the best. The firm run by Andrew Sandler had 139 stocks in its portfolio with market caps of $1 billion or more that achieved returns of 7.2%. This is an approximation assuming that Sandler hasn’t changed his picks drastically during the first quarter. Sandler has been running the long/short hedge fund since 1997. He began his career as a research analyst at Perry Partners in 1989, after receiving his BS in Finance from the University of Wisconsin.

Before we get to some of those picks, let’s talk about why tracking the stock picks and returns of hedge funds is important.

Equity hedge funds returned just 1.4% in 2014 compared with 11.1% in 2013, and 4.8% in 2012. This is embarrassingly low compared to the SPDR S&P 500 ETF Trust (NYSEARCA:SPY)’s 13.5% gain in 2014, 32.3% gain in 2013, and 16% gain in 2012. What is going on here? Have the managers lost their touch in picking stocks? The answer is a resounding no and the reason is simply size (see a more detailed explanation here). Hedge funds are actually pretty skillful at picking small-cap stocks but it’s been tough to generate meaningful alpha in the large-cap space. Our research has shown that the most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by nearly a percentage point in back test covering the 1999-2012 period. We have tracking the performance of these stocks since August 2012. The stocks returned 28.2% in 2014, 53.2% in 2013, and 33.3% in 2012 (see the details here).

Now, here’s how Sandler Capital Management outperformed.

Andrew Sandler of Sandler Capital Management made an interesting new pick in Humana Inc (NYSE:HUM). In the last quarter of 2014, Sandler purchased for the firm 145,950 shares for a $20 million investment into Humana Inc (NYSE:HUM). This represents a 1.1% position of the firm’s overall 13F portfolio. The stock gained 24% in the first quarter of 2015 and appeared on our list of 5 Takeover Targets Hedge Funds Are Betting On. Fund ownership jumped from 34 to 49 owning $2.28 billion worth of shares. Notable investors associated with Humana Inc (NYSE:HUM) include Larry Robins’ Glenview Capital, the largest shareholder with 2.2 million shares at the end of 2014 and Stephen Mandel’s Lone Pine Capital with 1.91 million shares.