New York-based Omega Advisors, founded by ex-Goldman Sachs Asset Management CEO and current billionaire Leon Cooperman in 1991, holds a public equity portfolio of roughly $6.27 billion as of the latest 13F reporting period of March 31. Cooperman is primarily invested in the finance and consumer discretionary sectors, at 26% and 22% of the value of his portfolio respectively. We have already covered several aspects of Cooperman’s portfolio, including his top equity picks, his top new positions, as well as three stocks that both him and fellow billionaire David Einhorn purchased during the first quarter. Now we’ll take a look at the respected money manager’s top positions in small-cap stocks valued at between $1 billion and $5 billion, those being Chimera Investment Corporation (NYSE:CIM), QEP Resources Inc (NYSE:QEP), and HRG Group Inc. (NYSE:HRG).
Professional investors like Cooperman spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. However, we also know that the returns of hedge funds on the whole have not been good for several years, underperforming the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds performed far better than their large-cap picks, which is where most of their money is invested and why their performances as a whole have been poor. A portfolio of the 15 most popular small-cap stocks among funds outperformed the S&P 500 Total Return Index by 95 basis points per month between 1999 and 2012 in backtesting. The exceptional results of this strategy got even better in forward testing after the strategy went live at the end of August 2012. A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned more than 144% and beaten the market by more than 84 percentage points since then, and by 4.6 percentage points in the first quarter of this year (see the details).
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The leading small-cap pick of Cooperman is in real estate investor Chimera Investment Corporation (NYSE:CIM), in which he holds a large stake of 12.04 million shares (post-reverse split) with a value of $188.99 million. Chimera Investment Corporation (NYSE:CIM), which is down by 10.06% year-to-date, initiated a reverse 1:5 stock split earlier this spring. After the reversed split, Chimera has roughly 205.58 million outstanding shares. On May 11 Chimera reported its earnings for the first quarter, with $0.59 earnings per share beating the estimates by $0.01, and a big increase of $0.58 compared to the first quarter of 2014. Being a real estate investment trust (REIT), Chimera keeps a large number of securitized fixed-income products on its balance sheet, asset classes that since the freeze in 2007 and 2008, have recovered in popularity. This is lucky for Chimera, since it states that its main business objective is making a profit from the spread between its cost of capital and the yield of its investments. Another hedge fund that was bullish in Chimera Investment Corporation (NYSE:CIM) was Jeffrey Bronchick‘s Cove Street Capital, which held a post-reverse split total of 1.55 million shares.
A stake of 10.75 million shares valued at $134.14 million was held by Cooperman in the Rochester, New York-based holding company HRG Group Inc. (NYSE:HRG). The British conglomerate owns or holds a majority position in several companies including Spectrum Brands, Fidelity and Guaranty Life, and Compass Production GP, LLC. The company has a 57.5% ownership position in Spectrum Brands, which recently announced the purchase of American automotive aftermarket parts company Armored AutoGroup Parent Inc. Shares of HRG have struggled in 2015 as well, dipping by more than 9%. Jason Karp of Tourbillon Capital Partners opened a new position in HRG Group Inc. (NYSE:HRG) during the first quarter consisting of 7.95 million shares, making it one of Karp’s own top small-cap picks.
Cooperman’s stake in oil company QEP Resources Inc (NYSE:QEP) was decreased by 6% during the first quarter, leaving Omega with a stake of 4.12 million shares valued at $85.95 million. Utah-based QEP has, like many companies in the gas and oil sector, struggled with narrowing margins from low oil prices. The result on the stock exchange has unsurprisingly been a year-to-date loss of 7.17%. On April 29, QEP released its results for the first quarter, reporting an earnings per share loss of $0.05, which was actually much better than analysts had predicted. QEP Resources Inc (NYSE:QEP) also reported that it has significantly slowed down its drilling and production, adjusting its cost structure to the depressed market prices. Instead QEP is, according to its CEO and President Mr. Chuck Stanley, focused on increasing the efficiency of its existing wells and operations. On our list of hedge funds whom own stakes in QEP we find HBK Investments with 707,500 shares, and D E Shaw, now holding 3.70 million shares worth $77.14 million in the oil holding company.
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