John Paulson is the president and founder of Paulson & Co, a New York-based hedge fund which dates back to 1994 and which has over $18 billion in assets under management. As of March 31, the top two sectors in which the fund allocated its assets were healthcare at over 34%, and the services sector at nearly 29%. Paulson is no stranger to great acclaim as a money manager, being hailed by Trader magazine as the best trader in the world in 2008. Wall Street knows him as one of the men who predicted the sub-prime collapse, which returned to one his flagship funds, The Paulson Credit, unbelievable 590% gains during the crisis year. Moreover, his prediction about the gold price increase and the bailout of “two-big-to-fail” banks also turned profitable: Paulson made a record-breaking $5 billion during a single day. So, let’s take a closer look at the new picks of the “best trader”, which include American International Group Inc (NYSE:AIG), Computer Sciences Corporation (NYSE:CSC), Cyberonics Inc (NASDAQ:CYBX), and Outfront Media Inc (NYSE:OUT), and see what they are made of.
An everyday investor does not have the time or the required skill-set to carry out an in-depth analysis of equities and identify companies with the best future prospects like a fund with the knowledge and resources of Paulson & Co can. However, it is also not a good idea to pay the egregiously high fees that investment firms charge for their stock picking expertise. Thus a retail investor is better off to monkey the most popular stock picks among hedge funds by him or herself. But not just any picks mind you. Our research has shown that a portfolio based on hedge funds’ top stock picks (which are invariably comprised entirely of large-cap companies) falls considerably short of a portfolio based on their best small-cap stock picks. The most popular large-cap stocks among hedge funds underperformed the market by an average of seven basis points per month in our back tests whereas the 15 most popular small-cap stock picks among hedge funds outperformed the market by nearly a percentage point per month over the same period between 1999 and 2012. Since officially launching our small-cap strategy in August 2012 it has performed just as predicted, beating the market by over 84 percentage points and returning over 142%, while hedge funds themselves have collectively underperformed the market (read the details here).
On the financial front, Paulson & Co added a new position of 14.60 million shares of American International Group Inc (NYSE:AIG), valued at $800.11 million to its equity portfolio. During 2015, the stock of the $84.32 billion insurance company has already appreciated by 12.37%. Even though American International Group Inc (NYSE:AIG) was among a few big players who were severely hurt during the sub-prime collapse, these days the company strives to improve its balance sheet though deleveraging, and its financial performance through operating margins. Among the other prominent investors that we follow, Bruce Berkowitz’ Fairholme (Fairx) held about 23.86 million shares of AIG, which were valued at $1.31 billion at the end of the first quarter.
The next on the list is Computer Sciences Corporation (NYSE:CSC), in which Paulson & Co opened a position valued at $272.87 million, represented by 4.18 million shares. The $9.22 billion information services company recently announced its split into two separate companies, one of which will concentrate on commercial clients and the other one on government contracts. During the past year, the stock has traded sideways, though it is greater than 5% in the green in 2015. Barry Rosenstein’s JANA Partners added a significant 172% to its previously held stake in Computer Sciences Corporation (NYSE:CSC). Rosenstein now owns 7.47 million shares in total, valued at $457.50 million.