York Capital Management is a New York-based long/short equity hedge fund founded by billionaire James Dinan. Mr. Dinan worked as an investment banker at Donaldson, Lufkin & Jenrette for two years until 1983 and afterwards, earned his MBA from Harvard Business School. In 1985 he joined merger arbitrage firm Kellner DiLeo & Company and after losing his entire savings of $600,000 in the market crash of 1987, he managed to raise $3.6 million from friends and colleagues at Donaldson, Lufkin & Jenrette to start York Capital Management in 1991. The fund had almost $610 million in assets under management (AUM) in the year 2000 and since then has grown to around $27 billion in AUM. York Capital Management recently submitted its 13F with the SEC for the September 30 period of report. According to the filing, the value of the fund’s U.S equity portfolio declined significantly during the difficult third quarter, to nearly $7.5 billion, from $11.8 billion at the end of June. The filing also revealed that the fund’s portfolio had a very high turnover rate of 90.53% during the third quarter and that York Capital Management’s top ten equity holdings accounted for 44.55% of the value of its equity portfolio. In this article we are going to take a closer look at Mr. Dinan’s top five stock picks going into the fourth quarter, four of which he bought shares of in the third quarter.
Why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 38 month period beginning from September 2012, returning 102% (read the details here).
#5 Kraft Heinz Co (NASDAQ:KHC)
– Shares Owned by York Capital Management (as of September 30): 4.07 Million
– Value of Holding (as of September 30): $286.93 Million
Although Kraft Heinz Co (NASDAQ:KHC) was a new addition to York Capital Management’s portfolio during the third quarter, one must remember that the fund owned over 6.8 million shares of Kraft Foods Group Inc at the end of June. Kraft Heinz Co (NASDAQ:KHC) started trading as a separate entity in July, after the merger of Kraft Foods Group Inc and H.J. Heinz Co. was completed, and ever since its shares have been mostly trading in the $70-to-$80 range. On November 5, the company reported results for the third quarter of fiscal 2015, declaring EPS of $0.44 on revenue of $6.12 billion versus analysts’ expectations of EPS of $0.63 on revenue of $4.70 billion. Following the earnings release, on the same day, analysts at Susquehanna reiterated their ‘Neutral’ rating and $78 price target on the stock. Warren Buffett‘s Berkshire Hathaway, which played a crucial role in the Kraft-Heinz merger, was the largest shareholder of Kraft Heinz Co at the end of June among the funds tracked by Insider Monkey with an ownership of over 325 million shares of the company.
#4 Broadcom Corporation (NASDAQ:BRCM)
– Shares Owned by York Capital Management (as of September 30): 5.64 Million
– Value of Holding (as of September 30): $290.27 Million
York Capital Management added an additional 1.7 million shares of semiconductor giant Broadcom Corporation (NASDAQ:BRCM) to its portfolio during the third quarter. Shares of Broadcom Corporation (NASDAQ:BRCM) are currently trading up by more than 24% year-to-date thanks largely to the huge spike they had on May 27 after Avago Technologies Ltd(NASDAQ:AVGO) announced that it would be acquiring Broadcom Corporation for $37 billion in a cash-and-stock deal. On November 23, European antitrust regulators approved the deal without restrictions. For the third quarter, Broadcom Corporation reported EPS of $0.77 on revenue of $2.19 billion, compared to EPS of $0.91 on revenue of $2.26 billion that it reported for the same quarter of last year. By purchasing over 23.5 million shares of the company during the third quarter, Andreas Halvorsen‘s Viking Global became Broadcom Corporation’s largest shareholder at the end of September among the funds we track.