Billionaire Daniel S. Och’s Biggest Bets For Q4

OZ Management is one of the most famous and largest long/short equity hedge funds based out of New York. As of November 1, the fund boasted an estimated $44.4 billion in assets under management. It was founded by Daniel S. Och, who holds a B.S. in Finance from the Wharton School of the University of Pennsylvania, in 1994. Prior to founding Oz Management, Och worked at Goldman, Sachs & Co for 11 years. According to the fund’s recently submitted 13F filing with the SEC for the reporting period of September 30, its U.S equity portfolio was worth over $28.7 billion as of that date. The filing also revealed that OZ Management’s equity portfolio had a high quarter-over-quarter turnover of 85.48% during the third quarter and that the fund’s top ten equity holdings accounted for 27.30% of the value of its equity portfolio. In this article we are going to take a closer look at OZ Management’s top five stock picks at the end of September and try to gauge why Och loves them so much.

Hedge funds have been underperforming the market for a very long time. However, this was mainly because of the huge fees that hedge funds charge as well as the poor performance of their short books. Hedge funds’ long positions performed actually better than the market. Small-cap stocks, activist targets, and spin offs were among the bright spots in hedge funds’ portfolios. For instance, the 15 most popular small-cap stocks among hedge funds outperformed the market by more than 53 percentage points since the end of August 2012, returning 102% (read the details here). This strategy also managed to beat the market by double digits annually in our back tests covering the 1999-2012 period.

#5 Endo International plc – Ordinary Shares (NASDAQ:ENDP)

 – Shares Owned by OZ Management (as of September 30): 10.12 Million

 – Value of Holding (as of September 30): $701 Million

Let’s start with healthcare company Endo International plc – Ordinary Shares (NASDAQ:ENDP), in which OZ Management increased its stake by 14% during the third quarter. The stock of Endo International plc – Ordinary Shares (NASDAQ:ENDP) rose steadily from the start of the year until mid-April, but since then has suffered a gradual decline, causing it to now trade with year-to-date losses of 16.6%. On November 5 the stock of the company slumped by 15% after it reported its financial results for the third quarter. Although the firm’s EPS of $1.00 on revenue of $746 million that it reported for the quarter was better than analyst estimates of EPS of $1.00 on revenue of $736.16 million, it was well below the EPS of $1.15 on revenue of $764 million that it reported for the same quarter of last year. Following the earnings release, the company announced that it will enter into a program starting on November 9 to repurchase up to $250 million of its common stock. After OZ Management, Larry Robbins‘ Glenview Capital was the largest shareholder of Endo International plc at the end of September among the hedge funds tracked by Insider Monkey, even after reducing its stake in the company by 22% to 6.94 million shares during the third quarter.

#4 Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT)

 – Shares Owned by OZ Management (as of September 30): 11.24 Million

 – Value of Holding (as of September 30): $747.14 Million

Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT) was one of the stocks in which OZ Management increased its stake the most significantly during the third quarter; the fund bought nearly 5.0 million shares of the company during that period. One of the main reasons that OZ Management bought so many shares could be due to Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT)’s stock suffering a notable decline of 17.58% during that period. Although the stock managed to recoup a lot of the losses it suffered during the third quarter after the company reported its third quarter numbers on October 28, it still trades down by more than 10% year-to-date. On November 17, analysts at JMP Securities downgraded the stock to ‘Market Perform’ from ‘Outperform’. Andreas Halvorsen‘s Viking Global was one of the hedge funds that initiated a stake in the company during the third quarter, buying 5.2 million shares.

#3 Time Warner Inc (NYSE:TWX)

 – Shares Owned by OZ Management (as of September 30): 11.71 Million

 – Value of Holding (as of September 30): $805 Million

Moving on, the 21% decline that shares of Time Warner Inc (NYSE:TWX) suffered during the third quarter gave OZ Management another opportunity to increase its stake in the company, by 23%, after increasing it during the second quarter by 4%. According to recent reports, Time Warner Inc (NYSE:TWX) might be on the verge of becoming one of the main investors in streaming company Hulu. On November 16, analyst Brett Harriss of Gabelli & Company released a note to clients in which he anticipated  that Twenty-First Century Fox Inc (NASDAQ:FOXA) might re-bid for Time Warner Inc, after the former failed to acquire the latter last year.  On November 13, analysts at Barclays reiterated their ‘Equal Weight’ rating on Time Warner Inc’s stock, but lowered their price target on it to $80 from $88. Israel Englander‘s Millennium Management reduced its stake in Time Warner Inc by 12% to almost 2.5 million shares during the July-to-September period.

#2 Walgreens Boots Alliance Inc (NASDAQ:WBA)

 – Shares Owned by OZ Management (as of September 30): 9.9 Million

 – Value of Holding (as of September 30): $821.4 Million

Retail pharmacy giant Walgreens Boots Alliance Inc (NASDAQ:WBA) is the only company in this list in which OZ Management reduced its stake during the third quarter; the fund sold almost 540,000 shares of the company during that period. Shares of Walgreens Boots Alliance Inc (NASDAQ:WBA) have mostly been range-bound throughout most of 2015 and currently trade up by over 7% year-to-date. On October 28, the same day that the company reported its fiscal year 2015 fourth quarter results, it also announced that it would be acquiring smaller rival Rite Aid Corporation (NYSE:RAD) in a $17.2 billion deal. John Armitage‘s Egerton Capital Limited more than doubled its stake in Walgreens Boots Alliance Inc (NASDAQ:WBA) to 4.46 million shares during the third quarter.

#1 Allergan PLC (NYSE:AGN)

 – Shares Owned by OZ Management (as of September 30): 4.04 Million

 – Value of Holding (as of September 30): $1.10 Billion

Finally, even though Allergan PLC (NYSE:AGN)’s stock [formerly Actavis, PLC] dropped by more than 10% during the quarter, the 360,704 shares that OZ Management purchased during that period helped Allergan PLC (NYSE:AGN) retain its spot as the fund’s largest equity holding by the end of September. On November 22, pharmaceutical behemoth Pfizer Inc. (NYSE:PFE) announced that it would buy Allergan PLC in a $160 billion deal. However, instead of rising shares, both stocks fell when they opened for trading that morning, mostly because investors realized that this merger would actually bring lower cost savings than they had originally anticipated. Analysts at Mizuho reiterated their ‘Buy’ rating and $340 price target on Allergan PLC’s stock on the same day nonetheless. First Eagle Investment Management also increased its stake in Allergan PLC during the third quarter; it held slightly more than 1.67 million shares of the company as of September 30.

Disclosure: None