Although there was a ton of cash on the sidelines ahead the United Kingdom’s referendum on whether to leave the European Union or not, most hedge fund managers appear to have been hit by the shockwaves caused by the British electorate’s decision to leave the economic and political bloc. Equities across the entire globe were on a free fall on Friday and Monday and the British pound plunged to a 30-year low against the green buck, so there is little chance the hedge fund industry has not been impacted by the so-called Brexit.
However, there was a handful of hedge fund vehicles that benefited from Britons’ surprising decision. For instance, David Harding’s Winton Capital Management, which runs automated computer programs to trade equities and other instruments, gained big from the U.K.’s historic decision to leave the EU, thanks to bets against the British pound and the euro, as Financial Times wrote. Interestingly enough, Mr. Harding was a prominent backer of the Remain campaign, as he donated roughly $5.1 million to a lobby group that was persuading Britons to vote to remain in the EU. Leaving this discussion aside, Insider Monkey decided to have a look at the British investment firm’s top stock picks at the end of the March quarter.
At Insider Monkey, we track around 770 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).
#5. Goodyear Tire & Rubber Co (NASDAQ:GT)
– Shares owned by Winton Capital Management as of March 31: 3.20 Million
– Value of Winton Capital Management’s holding as of March 31: $105.55 Million
Winton Capital Management upped its stake in Goodyear Tire & Rubber Co (NASDAQ:GT) by 390,581 shares during the March quarter to 3.20 million shares. The upped stake was valued at $105.55 million on March 31 and accounted for 1.1% of the firm’s entire portfolio. The well-known manufacturer of tires has lost one-fifth of its market capitalization since the beginning of 2016. Although some might have anticipated that lower gas prices would eventually lead to more driving and additional wear and tear on tires, this line of thought does not seem to be reflected in the company’s stock performance. Goodyear Tire & Rubber reported net sales of $3.69 billion for the first quarter of 2016, down from $4.02 billion posted a year ago. The decrease in the company’s top line was mainly attributable to foreign currency headwinds, the deconsolidation of its Venezuelan subsidiary, as well as lower motorcycle tire sales in Americas. Richard McGuire’s Marcato Capital Management owned 4.87 million shares of Goodyear Tire & Rubber Co (NASDAQ:GT) at the end of March.
#4. eBay Inc. (NASDAQ:EBAY)
– Shares owned by Winton Capital Management as of March 31: 4.50 Million
– Value of Winton Capital Management’s holding as of March 31: $107.36 Million
The British asset manager reduced its exposure to eBay Inc. (NASDAQ:EBAY) by 15% during the January-to-March period, ending the first quarter with 4.50 million shares. The reduced stake was worth $107.36 million at the end of March and made up 1.2% of the fund’s portfolio. The commerce giant has seen its market value plunge by 17% so far in 2016 and investors do not seem to believe eBay has strong growth catalysts for the foreseeable future. The ongoing shift to e-commerce appears to be one strong growth catalyst for eBay, along with the company’s online ticket platform StubHub. StubHub dominates the secondary market for buying and selling entertainment tickets, recently inking a nearly seven-year revenue-sharing deal to resell tickets for the New York Yankees. eBay’s ticket platform will commence running the ticket-resale business for the baseball team in early July. Cliff Asness’ AQR Capital Management upped its eBay Inc. (NASDAQ:EBAY) stake by 54% during the March quarter to 10.52 million shares.
The second page of this article will discuss Winton Capital Management’s three-largest equity holding at the end of the March quarter.
#3. Gilead Sciences Inc. (NASDAQ:GILD)
– Shares owned by Winton Capital Management as of March 31: 1.23 Million
– Value of Winton Capital Management’s holding as of March 31: $112.78 Million
David Harding’s investment firm had 1.23 million shares of Gilead Sciences Inc. (NASDAQ:GILD) in its portfolio at the end of March, 32,131 shares less than at the end of December. The trimmed position was valued at $112.78 million on March 31. The shares of the California-based drug maker are down 22% thus far in 2016. The decline appears to reflect investor worries around the biopharmaceutical company’s two hepatitis drugs, Sovaldi and Harvoni. U.S. net product sales of Harvoni in the first quarter of 2016 were $1.4 billion, down from $3.0 billion posted a year ago. The decline was mainly driven by lower average net selling price and lower demand due to a reduced number of patients starting treatment. Meanwhile, overall first-quarter net product sales of Sovaldi, which accounted for 18% of the company’s total antiviral product sales in the first quarter, grew 31% year-over-year to $1.28 billion. John Armitage’s Egerton Capital Limited reported owning 4.52 million shares of Gilead Sciences Inc. (NASDAQ:GILD) in its latest 13F filing.
#2. Apple Inc. (NASDAQ:AAPL)
– Shares owned by Winton Capital Management as of March 31: 1.09 Million
– Value of Winton Capital Management’s holding as of March 31: $118.65 Million
Winton Capital Management also trimmed its position in Apple Inc. (NASDAQ:AAPL) by nearly 53,000 shares during the first three months of 2016, ending the March quarter with 1.09 million shares valued at $118.65 million. Apple has seen the value of its shares fell by 12% since the beginning of 2016, thanks to worries over the company’s slowing iPhone sales. Apple recently reported the first year-over-year revenue decline since 2003, as iPhone sales, the largest contributor to the company’s top line, fell 18% year-on-year. Some argue that the decline in iPhone sales could be attributed to consumers’ desire to buy the upcoming iPhone 7. Numerous individuals bought the iPhone 6 on a two-year contract in September 2014, so this group of iPhone users may seek for an upgrade this September. Apple’s rumored involvement in the driverless car industry may serve as a longer-term catalyst for the iPhone maker. Warren Buffett’s Berkshire Hathaway added a 9.81 million-share stake in Apple Inc. (NASDAQ:AAPL) during the first three months of 2016.
#1. International Business Machines Corp. (NYSE:IBM)
– Shares owned by Winton Capital Management as of March 31: 1.13 Million
– Value of Winton Capital Management’s holding as of March 31: $170.94 Million
International Business Machines Corp. (NYSE:IBM) was the largest equity holding in the British investment firm’s portfolio at the end of the March quarter, constituting 1.9% of the firm’s entire portfolio. The asset manager cut its IBM stake by 20% during the January-to-March quarter to 1.13 million shares, which were worth $170.94 million on March 31. IBM shares have advanced by almost 5% since the start of 2016, but analysts believe the stock has more room to run ahead. In late March, analysts at Morgan Stanley reiterated their “Overweight” rating on IBM and increased their price target to $168 from $140, saying that IBM shares could soar to $195 should investors comprehend the potential of the company’s artificial intelligence service called Watson. IBM pays shareholders an annual dividend of $5.20 per share, which equates to an attractive dividend yield of 3.86%. The Oracle of Omaha had a whopping 81.23 million shares of International Business Machines Corp. (NYSE:IBM) in his portfolio at the end of March.