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Billionaire David Tepper’s ETF Killer Stock Picks

According to a prominent financial newspaper, about eight in 10 hedge funds have underperformed so far this year. While this may turn some people off on the prospect of considering hedge funds as a viable investment vehicle, outstanding performances by certain funds should be considered, as these select funds manage to vastly outperform stock indices. The 30 mid-cap stocks that these overperfoming hedge funds had selected went on to generate a return of 18% in the 12 months ending November 21, surpassing the S&P 500 Index’s 7.6% return in the same period. And out of 659 hedge funds tracked by Insider Monkey, 627 funds containing at least five long positions in companies valued at $1 billion or more have gained 8.3% in returns on average from their long picks, a full 5.0 percentage above S&P 500 ETF returns.

Billionaire David Tepper’s Appaloosa Management LP is one of those high-performing hedge funds. The employee-owned hedge fund, which moved from New Jersey to the warmer climate (and more lax tax rules) of Florida earlier this year, had an equity portfolio worth $4.40 billion at the end of the third quarter, up from $3.80 billion in the previous quarter. Tepper started Appaloosa in 1993 and became known for investing in distressed companies and generating high returns from them, as well as becoming the highest-paid hedge fund manager in the middle of the financial crisis in 2009. Based on Insider Monkey’s comprehensive back-test, Appaloosa also returned 0.96% per month between 1999 and 2012 from its positions in companies with market cap above $20 billion, compared with S&P 500’s 0.34% a month in the same period, thus beating the index by 0.62 percentage point per month, or 7.44% on an annualized basis. In this article, we are going to take a closer look at some of David Tepper’s best-performing stock picks, which show that imitating his moves can help a retail investor outperform the market and to be better off than investing in an industry- or index-tracking ETF.

Appaloosa Management Lp

Let’s start with Alphabet Inc (NASDAQ:GOOG), the parent company of search engine giant Google, in which Appaloosa Management has 472,000 class C shares worth $366.88 million as of the end of the third quarter, after having sold 158,000 shares between July and September. Alphabet’s stock hit its all-time high of $813.11 per share on October 24; three days later, the Internet giant revealed third-quarter EPS of $9.06 and revenue at $22.45 billion, both figures easily beating consensus estimates of $8.62 and $13.17 billion. While the core business remains strong, Alphabet’s “moonshot” projects are undergoing changes amid certain challenges. The tech giant recently has turned its self-driving car project into a stand-alone company called Waymo LLC. Alphabet’s stock has grown by more than 4% since the beginning of the year. Among hedge funds tracked by Insider Monkey, 134 held positions in Alphabet Inc. (NASDAQ:GOOG)’s Class C stock at the end of the third quarter, up by six funds over the quarter.

During the third quarter, Appaloosa Management maintained its holding in Williams Partners LP (NYSE:WPZ) at 9.27 million shares, valued at $344.64 million. In November, the natural gas transmission company completed the execution of an agreement with the US affiliates of Total SA (NYSE:TOT) for gas gathering activities in the Barnett Shale that will run through 2029. A month later, Barclays reinstated coverage of the company, assigning an “Equal Weight” rating and a $37 price target. Year-to-date, Williams Partners’ stock has advanced by more than 25%. Among hedge funds tracked by Insider Monkey, 11 funds were long Williams Partners LP (NYSE:WPZ) at the end of September, down from 13 funds a quarter earlier.