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).

Andrew Sandler

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.

Andrew Sandler had a nice pick in Skyworks Solutions Inc (NASDAQ:SWKS). The stock had an impressive run going from about $27 to $73 in 2014.  Investors continue to expect good things in Skyworks Solutions Inc (NASDAQ:SWKS) due to popularity in Apple Inc.’s (NASDAQ:AAPL) iPhone 6 and as 4G LTE network continues to gain traction in China. The stock gained another 35% for the first quarter of 2015 but Sandler Capital Management might be taking profits off the table. At the beginning of 2015, Sandler had reduced the firm’s position by 42% to hold 214,800 shares of Skyworks Solutions Inc (NASDAQ:SWKS) at a value of $15.6 million and representing 0.82% of the overall portfolio. Other notable shareholders include Cliff Asness’ AQR Capital Management and Arrowstreet Capital run by Peter Rathjens, Bruce Clarke, and John Campbell. Both firms have over $100 million invested in the stock as of the latest filings.

Speaking of Apple Inc. (NASDAQ:AAPL), Sandler cut his firm’s exposure in that as well by 7% in the fourth quarter of 2014. As of the latest filing, Sandler Capital Management held 164,600 shares of Apple Inc. (NASDAQ:AAPL) at an investment valued at $18.1 million representing 0.95% of the firm’s portfolio. Legendary investor Julian Robertson of Tiger Management still likes the stock however saying that if Apple and Google’s (NASDAQ:GOOG) stocks had the 1970′s and 1980′s multiples, they would be double and triple the current prices. Apple Inc. (NASDAQ:AAPL) gained 13% in the quarter.

Interestingly, Sandler made a few moves in the firm’s position in Facebook Inc (NASDAQ:FB). Sandler began to reduce the firm’s position by 49% in the last quarter of 2014 which ended up at 482,000 shares of Facebook Inc (NASDAQ:FB) for an investment of $37.6 million. Simultaneously, he also added 140,000 call options for another $10.9 million investment. The equity portion stood at 1.98% but Sander Capital Management is still levered to Facebook with the call options.

Facebook Inc (NASDAQ:FB) is increasingly popular among the hedge funds we track, with 118 funds disclosing long positions in the latest round of 13F filings. Lone Pine is the largest shareholder of Facebook among the funds we track, followed by Philippe Laffont’s Coatue Management and Ken Griffin’s Citadel Investment Group, which own 7.18 million shares and 5.24 million shares respectively. With a user base of 1.4 billion users, investors expect some of Facebook Inc (NASDAQ:FB)’s latest acquisitions such as WhatsApp to begin to contribute to underlying profits. The stock returned 5.4% for the first quarter.

FedEx Corporation(NYSE:FDX) was one of the laggards in Sandler Capital Management’s portfolio. Sandler had begun reducing the firm’s positon by 46% in the fourth quarter of 2014. By the new year, the firm held 97,900 shares at an investment of $17 million representing 0.89% of the overall portfolio. FedEx Corporation(NYSE:FDX) fell 4.6% in the first quarter of 2015. Other notable names that had been reducing their position in FedEx Corporation(NYSE:FDX) include Ken Griffin’s Citadel Investment Group and Mason Hawkin’s Southeastern Asset Management by 24% and 38% respectively.

Disclosure: None