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Joel Greenblatt’s Gotham Asset Management’s Return, AUM, and Holdings

A famous value investor who mainly  focuses on special situations, the author of The Little Book that Beats the Market, Joel Greenblatt founded his own hedge fund called Gotham Capital, back in 1985 in New York City. Today, he is the co-chief investment officer and the managing principal of its successor, called Gotham Asset Management, which he runs with his partner Robert Goldstein. An already mentioned book, The Little Book that Beats the Market, describes a special quantitative investment strategy called “Magic Formula Investing”, which is a method for choosing the right stocks to invest in, based on value investment principles. Joel Greenblatt is also an adjunct professor at the Columbia University Graduate School of Business, where he teaches “Value and Special Situation Investing”, and serves on the board of directors of Pzena Investment Management. He graduated from the Wharton School of the University of Pennsylvania, with a BS summa cum laude in 1979 and with an MBA in 1980.

From 1985 until 1994, Gotham Capital had a fascinating track record – reporting a net return of 34% for this period. The fund provides to its investors a variety of diversified long/short hedge funds, all of which apply the same investment strategy. The essence of the Gotham Assets Management’s investment philosophy lies in the professional valuation of companies. “Our process is to analyze financial statements from approximately the 3000 largest U.S. companies based on our assessment of value. We then buy the companies we believe are the cheapest and short the ones we believe are the most expensive.”

Gotham Asset Management’s Return, AUM, and Holdings

When you listen to Joel Greenblatt, the world of investing sounds so easy. In a short video published in June 2018 on CNBC, he shared his simple advice on investing – “If you can’t figure out the value of a company, you have no business investing in it”.

Investor Joel Greenblatt breaks down the key to valuing a business from CNBC.

According to Joel Greenblatt, Gotham Asset Management’s secret of success lies in the fact that they are “sticking to their guns”. Why would the fund change its investment strategy that apparently works in a long run? Even when returns don’t match its expectations, it continues to follow the only investment strategy Joel Greenblatt thinks is worth following – and that’s value investing. Gotham Asset Mangement’s team analyses each company separately, in that manner conducting very detailed research. After the fund has invested in a company, it waits patiently for a year or two, to get rewarded for its smart valuation. Throughout the years the company grew bigger, managing around $5.3 billion in assets under management (data from June 2018). Let’s take a look at some of its return figures throughout the years.

For example, it’s Gotham Neutral Fund brought back 5.77% for the last four months in 2013, and 6.83% annualized in 2014. It’s flagship Gotham Absolute Return Fund brought back an impressive 29.82% back in 2013, followed by a good 9.31% gain in 2014. Then, 2015 turned out to be quite challenging for this fund, as it had lost 10.25%. In spite of the loss in 2015, Gotham Absolute Return Fund came out positive the next year, delivering a strong return of 7.97%. In 2017, it had an even higher gain of 10.03%, and last year through October it delivered 1.65%. Since its inception in August 2012 through 2018, Gotham Absolute Return fund delivered a return of 58.6%.

The insider Monkey’s flagship strategy identifies the best performing 100 hedge funds at the end of each quarter and invests in their consensus stock picks. This way it is always invested in the best ideas of the best performing hedge funds and is able to generate much higher returns than the market. Since its inception in May 2014, our flagship strategy generated a cumulative return of 89%, beating the S&P 500 ETF (SPY) by 29 percentage points (see the details here).  

At the end of the fourth quarter of 2018, Gotham Asset Management’s equity portfolio was valued $6.44 billion. As very diversified it counted more than 900 long positions. Among the top three most valuable positions the fund held, was a position in Apple Inc. (NASDAQ:AAPL), which is one of the 30 Most Popular Stocks Among Hedge Funds. The fund reported $65.43 million worth a stake in the company, on the account of 414,819 shares outstanding.

On the next page, you can read more about the most important positions and the changes the fund has made to its equity portfolio during Q4 2018.

The most valuable position the fund held on December 31, 2018, was in Honeywell International Inc. (NYSE:HON). This is a multinational conglomerate company that produces a wide range of consumer products and has a market cap of $112.70 billion. During the fourth quarter, the fund had raised its stake in it by 56% to 581,504 shares with a value of $76.83 million. Over the last five years, the company’s stock gained 67.36% and on February 20th, 2019 it had a closing price of $154.58. Honeywell International is trading at a P/E ratio of 17.19. For the fourth quarter of 2018, the company reported adjusted earnings per share of $1.91, compared to adjusted EPS of $1.89 for the same quarter in 2017. More importantly, Honeywell International announced its earnings expectations for 2019 and forecasted EPS of $7.80 to $8.10 and sales of $36.0 billion to $36.9 billion. At the end of the third quarter of 2018, there were 47 smart money investors from Insider Monkey’s database long this stock, down by two from one quarter earlier. Gotham Asset Management had its second biggest position at the end of the fourth quarter of 2018 in Verizon Communications Inc. (NYSE:VZ). The fund held 1.17 million Verizon’s shares, which were worth $66.03 million.

Among the largest new positions the fund acquired during Q4 of 2018, were PayPal Holdings Inc (NASDAQ:PYPL) and  Cigna Corp (NYSE:CI). In PayPal, a company that provides worldwide online payment services, Gotham Asset Management obtained a position that includes 731,138 shares with a value of $61.48 million. On February 20th, the company’s stock had a closing price of $94.73, gaining 9.87% over the last six months. The company is trading at a price-to-earnings ratio of 55.24 and has a market cap of $110.84 billion. At the end of Q3 2018, 97 investors from our table were bullish on this stock, which represents an increase of 12% from one quarter earlier. In a company that provides a plethora of healthcare-related services, Cigna Corp, the Gotham Asset Management established a position worth around $42 million, on the account of 221,113 shares outstanding.

During the fourth quarter of 2018, Gotham Asset Management decided to dump some companies, selling its entire positions. Among the biggest drops were Intuit Inc. (NASDAQ:INTU), in which the fund previously held 281,492 shares with a value of $64.01 million, United Rentals, Inc. (NYSE:URI) whose 155,182 shares with a value of $25.39 million the fund sold out, and Hyatt Hotels Corporation (NYSE:H) in which the fund held a stake worth $24.52 million, on the account of 308,129 shares.

Disclosure: None

This article was originally published at Insider Monkey.

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