Communications Sales & Leasing Inc (CSAL), OneMain Holdings Inc (OMF): Toscafund’s Q3 Winners Turn Traitor in Q4

Toscafund Asset Management is a London-based hedge fund founded in 2000 by Martin Hughes. Toscafund’s equity portfolio was valued at $43.49 million at the end of the second quarter. In the third quarter, the fund’s stakes in 7 companies whose market value was $1 billion or more returned an impressive 18.69%. While these returns are different from the actual returns posted by the fund, which include all of its positions, long and short, these returns calculated for Toscafund’s long positions show that the fund’s performance beat the market.

This strategy of calculating returns based on non-volatile stocks (micro-cap stocks) helps us focus on those hedge funds who have either timed the market well or whose picks are finally getting some of the recognition that they deserved. Toscafund is one of those hedge funds. In this article we’ll analyze its biggest bets which paid off in the third quarter, which were Communications Sales & Leasing Inc (NASDAQ:CSAL), OneMain Holdings Inc (NYSE:OMF), Cornerstone OnDemand, Inc. (NASDAQ:CSOD), and First Data Corp (NYSE:FDC).

Toscafund reported ownership of 2.3 million shares of Communications Sales & Leasing Inc (NASDAQ:CSAL), 46% less than the fund’s position in the company a quarter earlier. The aggregate value of Toscafund’s stake in the company stood at about $65.1 million on June 30. The stock returned 10.7% during the third quarter, but has given up those gains during the fourth quarter.

At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 60% jump from one quarter earlier, as hedge funds timed their move into the equity well. More specifically, Citadel Investment Group was the largest shareholder of Communications Sales & Leasing Inc (NASDAQ:CSAL), with a stake worth $91.3 million reported as of the end of June. Trailing Citadel Investment Group was Zimmer Partners, which amassed a stake valued at $73.7 million. Renaissance Technologies also held a valuable position in the company.

Toscafund had over 2.22 million shares of OneMain Holdings Inc (NYSE:OMF) in its portfolio at the end of the June quarter, valued at about $50.4 million. The stock was the best performer of the stocks listed in this article, returning 35.6% during the third quarter. However, shares tanked earlier this month, all the way down to 52-week-lows after it drastically cut its FY 2016 and FY2017 EPS guidance, which lead to several analysts slashing their ratings and price targets on the stock.

The company was in 20 hedge funds’ portfolios at the end of June down from 23 hedge funds in our database with OMF positions at the end of the previous quarter. Among these funds, Omega Advisors held the most valuable stake in OneMain Holdings Inc (NYSE:OMF), which was worth $73.5 million at the end of the second quarter. Moreover, Tricadia Capital Management, Key Colony Management, and Basswood Capital were also bullish on OneMain Holdings Inc (NYSE:OMF).

We’ll check out two more of the fund’s stock picks on the next page.

Toscafund Asset Management sold 27% of its stake in Cornerstone OnDemand, Inc. (NASDAQ:CSOD) during the second quarter. Going into the third quarter, the fund had 850,000 shares of the company, which had a net worth of over $35.80 million. The stock returned 20.7% during the third quarter but collapsed hard earlier this month after the release of its latest earnings results.

CSOD was in 27 hedge funds’ portfolios at the end of the second quarter. There were 23 hedge funds in our database with CSOD holdings at the end of the first quarter. Tensile Capital, managed by Douglas Dossey and Arthur Young, holds the number one position in Cornerstone OnDemand, Inc. (NASDAQ:CSOD). Tensile Capital has a $70 million position in the stock, comprising 17% of its 13F portfolio. Sitting at the No. 2 spot is Robert G. Moses of RGM Capital, with a $60.7 million position. Ken Griffin’s Citadel Investment Group, Glenn J. Krevlin’s Glenhill Advisors, and Dennis Puri and Oliver Keller’s Hunt Lane Capital were also long the stock.

Toscafund upped its stake in First Data Corp (NYSE:FDC) by 37% in the June quarter, ending the period with a total of over 2.2 million shares of the company, which had a total worth of over $24.51 million on June 30. The stock returned 18.9% during the third quarter and has gained another 8% in the fourth quarter, being the only stock to also post a positive Q4 gain.

Heading into the third quarter of 2016, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in the stock, a 106% surge from one quarter earlier. Omega Advisors was the largest shareholder of First Data Corp (NYSE:FDC) on June 30, with a stake worth $173.3 million reported as of the end of June. Trailing Omega Advisors was Brahman Capital, which amassed a stake valued at $126.3 million. Glenview Capital, Palestra Capital Management, and Alyeska Investment Group also held valuable positions in the company.

Disclosure: None