Even though the overall hedge fund industry has been lagging and underperforming passive investors and the broader market in general, some groups within the industry are showing signs of regaining momentum. Quantitative hedge funds have gained popularity a couple of years ago and are still going strong and now equity-focused hedge funds are also showing signs of recovery. As correlations across the stock market became less pronounced, stockpickers are once again enjoying larger returns.
One fund that has turned things around is Luxor Capital Group, an event-driven hedge fund led by Christian Leone. According to Bloomberg, Luxor Capital Group’s main fund gained 3.6% in February and the firm overall saw returns of 7.8% in the first two months of 2018. FT said last year that Luxor was also one of the top performers last year, with double-digits returns in the January-September period. The fund made an impressive comeback, considering that it lost 19% in 2015.
At Insider Monkey, we also calculate a fund’s returns, but only focusing on the stocks that it is invested in, thus determining the performance solely based on the fund’s stock picking. In turn, this helps us identify whether or not we should follow a particular fund as part of our investment strategy. The strategy involves identifying the best-performing hedge funds and focusing on the best stocks that these funds are collectively bullish on. The stocks from our strategy are emailed to the subscribers of our premium newsletters every quarter. Between February 16 and May 16, our Best Performing Hedge Fund Strategy was up by 6.9%, beating the S&P 500 ETF (SPY) by 6.8 percentage points. Since its inception in May 2014, this strategy has returned over 90%, outperforming the SPY by more than 35 percentage points.
Based on our calculations, Luxor’s long positions (we only take into account companies with market caps above $1.0 billion) had a weighted average return of 13.2% in the first quarter of 2018, which puts it in the middle of our best-performing hedge funds list. However, in the 12-month period ended March 31, Luxor’s stock picks returned 51.3%, which places it on the top 10 performers list, which is led by Wildcat Capital Management and Opaleye Management. Luxor’s performance is mainly attributed to the huge growth of its top picks: Altaba Inc (NASDAQ:AABA), MINDBODY Inc (NASDAQ:MB), and IAC/InterActiveCorp (NASDAQ:IAC). The fund’s holdings in these companies amass around a quarter of the total value of its equity portfolio as of the end of March.
Moreover, during the first quarter of 2018, Luxor Capital Group initiated several new positions and substantially boosted its exposure to a couple of its older holdings. With this in mind, on the next page we are going to take a closer look at Luxor’s investments in Ally Financial Inc (NYSE:ALLY), Extended Stay America Inc (NYSE:STAY), Amazon.com, Inc. (NASDAQ:AMZN), Autodesk, Inc. (NASDAQ:ADSK), and Facebook, Inc. (NASDAQ:FB) and will try to determine whether following Luxor into this companies is a good idea.