Leon Cooperman‘s Omega Advisors recently released a detailed investor letter describing the firm’s investing philosophy and recent performance, to coincide with an investor conference call it conducted on October 19. The firm was founded by Cooperman in 1991 and uses deep fundamental research to find attractive undervalued equities (or overvalued shorts), based on the principles of value investing. The letter shed light on the third quarter returns of Omega’s long picks, which suffered to the tune of a 14.93% loss. However, the firm has rebounded quickly, with those long picks posting gains of 4.88% through the first half of October and his firm boasts a tidy 1,536.2% cumulative return since inception.
Along with the letter, Omega’s top 25 long positions in equities were revealed as of October 16. While exact figures aside from portfolio composition weren’t made available, the nearly up-to-date data is otherwise a nice bonus for investors who track the moves of elite money managers like Cooperman, as we at Insider Monkey do. That’s because such data is often unavailable for as many as six weeks after the end of each quarter, through 13F filings. With that in mind, let’s run through Cooperman’s top five positions as of October 16 and find the moves he has made over the past three-and-a-half months. Those stocks are American International Group Inc (NYSE:AIG), AerCap Holdings N.V. (NYSE:AER), Allergan PLC (NYSE:AGN), First Data Corp (NYSE:FDC), and Alphabet Inc (NASDAQ:GOOGL).
Let’s start with American International Group Inc (NYSE:AIG), which made headlines today because of another famous investor’s position in the company, that being Carl Icahn. The legendary activist revealed taking a large position in AIG and urged the company to split into three, so as to avoid the systemically important financial institution (SIFI) label and the enhanced regulation and supervision that would come with it. Shares of AIG gained nearly 5% on the news of Icahn’s involvement.
American International Group Inc (NYSE:AIG) ranked as Cooperman’s fifth-largest holding as of October 16, accounting for 2.6% of his equity portfolio. On June 30, the stock also ranked fifth and consisted of 3.40 million shares, amounting to 3.35% of Omega’s equity portfolio. Without knowing whether that portfolio is now larger or smaller than it was on June 30, we can’t determine if or by how much the size of the AIG position actually changed. Given that Cooperman has two big new positions on top of his portfolio, it’s possible that the portfolio is larger and thus its exposure to AIG naturally declined rather than Cooperman cutting the position.
Hedge funds and other big money managers like Cooperman tend to have the largest amounts of their capital invested in large and mega-cap stocks like Alphabet because these companies allow for much greater capital allocation. That’s why if we take a look at the most popular stocks among funds, we won’t find any mid- or small-cap stocks there. However, our backtests of hedge funds’ equity portfolios between 1999 and 2012 revealed that the 50 most popular stocks among hedge funds underperformed the market by seven basis points per month, showing that their most popular picks and the ones that received the bulk of their capital were not actually their best picks. On the other hand, their top small-cap picks performed considerably better, outperforming the market by 95 basis points per month. This was confirmed through backtesting and in forward tests of our small-cap strategy since August 2012. The strategy, which involves imitating the 15 most popular small-cap picks among hedge funds has provided gains of 102%, beating the broader market by over 53 percentage points (see the details).
Omega’s exposure to AerCap Holdings N.V. (NYSE:AER) also fell, to 3.0% from 4.22% on June 30. The position also dropped to fourth overall, from previously being ranked second. As the drop in the fund’s exposure to AerCap was larger than it was for AIG, we can assume the value of the holding declined by more. The stock performance partially accounts for that, as AerCap slid by over 11% between July 1 and October 15, while AIG was down by just over 4%.
Cooperman was bullish on the aircraft leasing company during the second quarter, increasing the size of his holding by 44% to 5.78 million shares and lifting it from tenth to second in his portfolio in the process. The collective sentiment towards AerCap Holdings N.V. (NYSE:AER) among the investors we track was similarly strong in the second quarter, as net ownership soared by 33 to 77, while the value of their holdings was up by over $1.7 billion to $4.12 billion. JANA Partners, Citadel Investment Group, and Maverick Capital were among the investment firms piling up shares of the company during the quarter.
Cooperman’s top three holdings will be revealed on the next page.