Michael Platt and William Reeves‘ BlueCrest Capital Management is one fund that has been an anomaly to the general disappointment felt by hedgies this year. By the end of September BlueCrest’s gains amounted to about 10% for the year as opposed to a 2.1% dip for its peers, according to the HFRI Equity Hedge (Total) Index. At the end of the third quarter the market value of BlueCrest’s public equity portfolio stood at $3.03 billion, with the finance sector representing 27% of the portfolio and the energy sector another 24%. Considering the firm’s success it is worthwhile for retail investors to look at the firm’s top picks as it headed into the fourth quarter. A common theme among most of these companies seems to be their Chinese base.
In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8,000 funds in operation at present, Insider Monkey looks at only the aristocrats of this group, around 730 funds. Contrary to popular belief, Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge, not because they are not good at picking stocks on the long side of their portfolios. Hedge funds did in fact manage to outperform the market on the long side of their portfolios. In fact, the 15 most popular small-cap stocks among hedge funds has returned 102% since the end of August 2012, beat the S&P 500 Index by 53 percentage points (see the details here).
#5 Precision Castparts Corp. (NYSE:PCP)
– Shares held (as of September 30): 99,900
– Total Value (as of September 30): $22.95 million
Precision Castparts Corp. (NYSE:PCP), which represents a new position for BlueCrest, has suffered a series of downgrades at the hands of analysts since August, with the last one coming in October by Wells Fargo, which lowered the company’s rating to ‘Market Perform’ from ‘Outperform’. In August, legendary investor Warren Buffett agreed to buy the $31.88 billion aerospace-equipment manufacturer for over $30 billion, causing a sharp 20% jump in Precision Castparts Corp. (NYSE:PCP)’s stock price, which has remained stable since then.
#4 China Life Insurance Company Ltd. (ADR) (NYSE:LFC)
– Shares held (as of September 30): 1.43 million
– Total Value (as of September 30): $24.90 million
BlueCrest significantly hiked its stake in China Life Insurance Company Ltd. (ADR) (NYSE:LFC) by acquiring some 1.15 million shares during the third trimester. The largest life insurance underwriter in China is investing more than $1 billion in U.S, warehouses since it believes that the U.S real estate market will serve as a more reliable and secure form of investment. BlueCrest’s bullish outlook towards China Life Insurance is in contrast to the general trend among the over 700 hedge funds that we track. At the end of the second quarter the total number of hedge funds having China Life in their equity portfolios dropped to 9, from 15 firms holding it at the end of June. Arrowstreet Capital, which is managed by Peter Rathjens, Bruce Clarke and John Campbell tops our list of China Life Insurance Company Ltd. (ADR) (NYSE:LFC)’s stockholders, as it owned more than 3.32 million shares of the company at the end of September.
#3 American Homes 4 Rent (NYSE:AMH)
– Shares held (as of September 30): 2.19 million
– Total Value (as of September 30): $35.18 million
During the third trimester BlueCrest added about 1.55 million shares to its American Homes position. So far this year the stock price of the $3.46 billion REIT is down by a little over 2.2%. In its financial results for the thrid quarter, American Homes 4 Rent (NYSE:AMH) delivered FFO of $0.19, which was in-line with estimates, while quarterly revenue of $172.61 million came in $13.97 million higher than expectations. Among over 700 hedge funds that we track Legg Mason Capital Management, now a part of ClearBridge, is the largest stockholder of American Homes 4 Rent (NYSE:AMH), holding nearly 6.59 million shares.
#2 PetroChina Company Limited (ADR) (NYSE:PTR)
– Shares held (as of September 30): 1.30 million
– Total Value (as of September 30): $90.62 million
BlueCrest has held a stake in the $243 billion energy company since the first quarter of this year. However, the major hike to the position came in the third quarter when the fund added some 1.29 million shares to the position. The stock looks considerably cheaper since it has fallen by nearly 37% so far this year on account of a low hanging oil price that refuses to budge on account of piling inventories. PetroChina Company Limited (ADR) (NYSE:PTR) is planning to sell a stake worth $2.4 billion in a pipeline company as China’s energy giants continue to make their businesses leaner and more profitable in the current environment. Renaissance Technologies stands at the heels of BlueCrest on our list of PetroChina Company Limited (ADR) (NYSE:PTR) stockholders, as it owns some 241,400 shares.
#1 CNOOC Ltd (ADR) (NYSE:CEO)
– Shares held (as of September 30): 3.20 million
– Total Value (as of September 30): $329.60 million
Lastly, Platt and Reeves massively bulked up their CNOOC stake during the July-to-September quarter by acquiring nearly 3.16 million shares of the China-based energy company. It is clear that BlueCrest is confident that the management of these two Chinese companies can stage a turnaround even in the face of a challenging environment. Jeffries upgraded the company to ‘Buy’ from ‘Hold’ in late September. Renaissance Technologies is also a believer in this company, as it held about 198,000 shares of CNOOC Ltd (ADR) (NYSE:CEO) at September’s end.