Hedge fund firms are usually too hedged (e.g. using SPY put contracts) to beat a bull market like the one we have experienced for the past several years. Even so, it is widely known that these investment vehicles have strong stock picking abilities, even though this claim is undermined by their poor overall performance. However, hedge funds’ high-conviction ideas tend to greatly outperform the broader market, which has been proven by our research, and one can mimic their moves without paying exorbitant fees. Having said that, this article will discuss three filings submitted with the SEC by several smart money investors observed by Insider Monkey, disclosing their latest moves in some of their highest conviction stock picks.
According to an amended 13G filing, Leon G. Cooperman’s Omega Advisors has ceased to be the beneficial owner of more than 5% of Atlas Resource Partners L.P. (NYSE:ARP). The public filing discloses that Omega Advisors owns 2.40 million shares of the independent developer and producer of natural gas, crude oil and natural gas liquids, which account for 2.35% of the company’s outstanding common stock. This compares with the 4.60 million-share position the firm held as of September 30. Commodity prices have been on a decline since the second half of 2014 and continue to trade at low levels, which has significantly affected production rates and investments in the development of new natural gas, oil and NGL reserves. Atlas Resource Partners L.P. (NYSE:ARP)’s management still believes that the levels of exploration and production activities will rebound in the long-term, but the company has to endure the current challenging environment. Meanwhile, shares of Atlas have lost 85% since the beginning of the year and it is not entirely clear how long the current low oil-price environment will last.
The hedge fund sentiment towards the stock did not change during the third quarter, as the number of smart money investors with positions in the company remained unchanged at five. These investors amassed 6% of the company’s outstanding shares, while the value of their stakes dropped to $16.01 million from $33.02 million quarter-over-quarter. Michael Kao’s Akanthos Capital owns a 970,000-share stake in Atlas Resource Partners L.P. (NYSE:ARP) as of September 30.
Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith (and money) in large-cap stocks. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 53 percentage points, returning 102% (read the details here). Follow the smart money into only their best investment ideas all while avoiding their high fees.
Let’s now head to the next page of the article, where we disclose the moves made by WS Management and BlueMountain Capital Management.
In a separate 13G filing, Gilchrist B. Berg’s WS Management reported owning 1.81 million shares of Deckers Outdoor Corp (NYSE:DECK), representing 5.60% of the company’s outstanding shares. WS Management owned a mere 260,000 shares in the footwear designer as of September 30. The company has seen its shares decline by 43% year-to-date, and they are currently trading at a very attractive trailing price-to-earnings ratio of 12.27, which may have attracted Berg to invest more heavily in the stock. The company mainly aims to strengthen its brands’ images and stresses a focus on comfort and authenticity in an attempt to build customer loyalty and avoid the fluctuations triggered by constantly changing consumer preferences. Deckers Outdoor Corp (NYSE:DECK) reported net sales of $506.2 million for the second quarter of fiscal year 2016 that ended September 30, which represents an increase of 5.4% on a constant currency basis, year-over-year. The increase is mainly attributable to the increase in sales of the UGG brand, which was in turn offset by a decrease in sales of the Teva and Sanuk brands.
The number of hedge funds invested in Deckers Outdoor increased to 28 from 27 during the third quarter, while the value of their investments declined to $364.29 million from $414.39 million quarter-over-quarter. These smart money investors had accumulated slightly more than 19% of the company’s shares as of September 30. Willem Mesdag’s Red Mountain Capital was bullish on Deckers Outdoor Corp (NYSE:DECK) at the end of the latest quarter, owning 1.05 million shares.
As stated by a freshly-submitted Form 4 filing, BlueMountain Capital Management, founded by Andrew Feldstein and Stephen Siderow, currently owns 9.17 million shares of TerraForm Power Inc. (NASDAQ:TERP). This compares with the 8.08 million-share position disclosed via BlueMountain’s latest filing on TerraForm, effective as of November 17. TerraForm Power Inc. (NASDAQ:TERP), a yieldco subsidiary of Sunedison Inc. (NYSE:SUNE), represents a dividend growth-oriented company that owns and operates contracted renewable energy assets purchased from its parent company and other parties. However, the medium-term uncertainty around Sunedison, which has mainly been caused by significant leverage, continued losses and skepticism over the acquisition of Vivint Solar Inc. (NYSE:VSLR), has put significant weight on TerraForm Power’s stock performance. As a result, the disappointing stock performance has hampered the yieldco’s financing options for implementing its growth strategy.
Expectedly, the yieldco lost a lot of its charm among the investors monitored by Insider Money during the third quarter, as the number of smart money investors with positions in the company decreased to 31 from 46 quarter-over-quarter. These money managers had still accumulated 24% of TerraForm Power’s outstanding common stock as of the end of September however. Christian Leone’s Luxor Capital Group held a 4.66 million-share stake in TerraForm Power Inc. (NASDAQ:TERP) on September 30.