Carl Icahn and Richard Blum Disclose Their Latest Moves; Should You Follow Them?

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With the third quarter having ended, hedge funds are disclosing their latest moves ahead of the next wave of 13F reports. Legendary corporate raider Carl Icahn cannot get enough of Cheniere Energy, Inc. (NYSEMKT:LNG) and has further increased his holding of the stock. As reported in a recent Form 4 filing with the Securities and Exchange Commission, Icahn has acquired a little over 1.5 million shares of Cheniere at an average price of $48.3 per unit. As a result, together with his fund, Icahn Capital LP, he now holds 28.5 million shares, which account for 12.07% of the company’s common stock, with the stake being activist by nature. In another filing, Blum Capital Partners has disclosed a reduction in its holding of Avid Technology, Inc. (NASDAQ:AVID) as Richard Blum is looking to limit exposure to the stock. The fund sold 271,667 shares, holding 6.85 million shares or 17.5% of the company’s stock after the transaction.

Carl Icahn - Icahn Capital Lp

A hedge fund legend that is always on the radar of investors, Carl Icahn has recently released a video in which he explains his growing concerns over the recent global economic trends and the stock markets. Icahn is unhappy with the politics in Washington D.C. and the “boardrooms of Corporate America”, slamming the US tax code that makes it unattractive for American companies to repatriate funds earned abroad. He is also troubled by the effects of low interest rates on the spending patterns of US companies. Rather than spend money on core business, companies tend to direct cash towards share buyback programs and takeovers, while hiding associated costs in their quarterly reports. As a result, earnings are artificially inflated, prompting the stock price to increase for the wrong reasons. Carl Icahn believes an asset bubble is inevitable in the current environment.

Follow Carl Icahn's Icahn Capital LP

Hedge funds and other big money managers like Icahn tend to have the largest amounts of their capital invested in large and mega-cap stocks like Apple Inc. (NASDAQ:AAPL) 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 118%, beating the broader market by over 60 percentage points through the end of April (see more details).

With an equity portfolio worth more than $31 billion, Carl Icahn is mainly exposed to his own company, Icahn Enterprises LP (NASDAQ:IEP), 112 million shares, up 4% during the second quarter, which account for roughly a third of the portfolio. Icahn has not made any adjustments to the remaining of hos top 10 holdings, which include Apple Inc. (NASDAQ:AAPL) and eBay Inc (NASDAQ:EBAY), with Icahn Capital holding 52.7 million shares of Apple and 46.2 million shares of eBay.

Follow Cheniere Energy Inc. (NYSEMKT:LNG)

An energy company engaged in the liquefied natural gas business, Cheniere Energy, Inc. (NYSEMKT:LNG) has a market cap of $11.41 billion and does not pay a dividend. The company posted revenues of $68 million for the three months ending June 30, registering a 0.5% increase year-over-year. The loss per share has also narrowed to $0.50 per share, from the $0.57 per share reported for the 2014 second quarter. With the company in expansion mode, analysts expect third quarter revenues to come in at $68.55 million and the loss to contract to $0.48 per share.

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