Hedge Funds Carlson Capital and Adage Capital Heavily Invest In The Same Stocks

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Recently, after compiling the latest 13F filings submitted by hedge funds, we have noticed a lot of similarities between the equity holdings of  Clint Carlson’s Carlson Capital and Phill Gross and Robert Atchinson’s Adage Capital. It is interesting that around half of the 315 stock public equity portfolio of Carlson Capital is also held by Adage Capital. At the same time, this is not surprising, given that both funds have nearly the same top-weighted bets on the financial and services industries. In order to make the review more helpful for a rank-and-file investor, let’s briefly take a look at how the two funds’ positions in JPMorgan Chase & Co (NYSE:JPM), Citigroup Inc (NYSE:C), ZF TRW Automotive Holdings Corp (NYSE:TRW) and Sigma-Aldrich Corporation (NASDAQ:SIAL) performed over the year. The positions in these stocks are the largest similar picks by both funds in value terms, so it would be great to know what they are made off and how the funds treated them.

Clint Carlson

Insider Monkey tracks hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of 6 basis points, though these stocks under-performed the S&P 500 Total Return Index by an average of 7 basis points per month between 1999 and 2012. These stocks were able to generate alpha because of their lower risk profile. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month. These stocks were slightly riskier, so their monthly alpha was 80 basis points (read the details here). We believe investors will be better off by focusing on small-cap stocks rather than large-cap stocks

The first stock on our list is JPMorgan Chase & Co (NYSE:JPM), in which Carlson Capital increased its equity stake by 68% during the first quarter, lifting its position to 2.23 million shares valued at $135.15 million. JPMorgan Chase & Co (NYSE:JPM) is a $255.88 billion banking giant, whose stock has appreciated by 19.85% on a year-to-date basis, while the industry as a whole returned only 7.20%. The bank is planning to cut around 2% of its staff later this year in attempts to become more efficient. This is one of the reasons why analysts have given the stock a mean target price of $71.56, showing some remaining upside above current trading levels, despite the strong performance so far this year. The opinions of Phill Gross and Robert Atchinson coincided with that of Clint Carlson, since they also increased their possession of the stock, by 27%. In total, Adage Capital finished the last quarter with 5.59 million shares of JPMorgan Chase & Co (NYSE:JPM) valued at $359.35 million.

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The next on the financial front is the stock of another banking giant, the $170.94 billion Citigroup Inc (NYSE:C). Following a 112% increase in the ownership of this company during the first three months of the year, Carlson Capital held 3.38 million shares with a total value of $174.21 million. On June 24 Deutsche Bank downgraded the company to “Hold” from “Buy”, and putting a target price of $56.00 on the stock, very close to where the shares are traded today. The concerns regarding the stock’s further upside potential are mostly centered on Citigroup Inc (NYSE:C)’s continued policy of deleveraging. Some analysts believe that despite expected growth in returns on assets, the shareholders will not see much in the way of new profits coming into their pockets because of lower leverage effects. Adage Capital acted more cautious and added 3% to its previously-owned share count. At the end of March, the fund reported having 4.80 million shares worth $247.40 million.

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