Billionarie Dubin’s Mid-Cap Picks Characterized By Lawsuits, Exchange Rates

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New York-based hedge fund Highbridge Capital Management LLC was co-founded in 1992 by billionaire Glenn Russell Dubin and his former classmate Henry Swieca. Swieca left the firm in 2009, while Dubin remains the CEO and chairman of the hedge fund. As of March 31, Dubin’s public equity portfolio worth $7.25 billion was primarily split among three sectors: healthcare, consumer discretionary, and technology. According to his firm’s latest 13F filing, the fund added 699 new stocks to its massive portfolio during the quarter, while increasing its stakes in 282 other positions. However we are going to take a closer look at three specific stocks of Dubin’s; his top mid-cap picks (stocks with market caps between $10 billion and $20 billion). Those stocks are Tyson Foods, Inc. (NYSE:TSN), Ralph Lauren Corp (NYSE:RL) and Regions Financial Corp (NYSE:RF).


Hedge funds and other big money managers like Dubin tend to have the largest amounts of their capital invested in large and mega-cap stocks like Gilead Sciences, Inc. (NASDAQ:GILD) 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 more than 142%, beating the broader market by over 83 percentage points through the end of April (see the details).

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We’ll start with food processor Tyson Foods, Inc. (NYSE:TSN), in which Dubin increased his stake by 3% to a total of 1.70 million shares with a value of $64.77 million. The Arkansas-based company has bounced between $37.00 and $44.00 this spring and is currently up by over 7% year-to-date. Tyson Foods posted earnings per share for the first quarter of $0.75, beating the analysts’ estimates by $0.02. Analysts are now expecting $0.95 in earnings per share for the second quarter, ending on June 30. Tyson Foods, Inc. (NYSE:TSN) is also involved in a lawsuit, known as the “Donning-Doffing case”, in which workers are suing Tyson Foods for not paying them accordingly. The Supreme Court announced last week that it is now granting the case a review, so for the time being, it’s far too early to speculate about any possible financial impact. Instead we will note that Dinakar Singh, representing TPG-Axon Management took a stake of 3.70 million shares with a value of $141.77 million and representing 9.94% of its public equity portfolio in Tyson Foods during the first quarter.

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