Barry Wittlin founded WCG Management, a New York-based macro hedge fund, in 2007. Prior to starting WCG Management, Wittlin worked at Bank of America Merrill Lynch as Senior Vice President and Head of Strategic Risk Trading for Global Markets & Investment. Although WCG Management mainly focuses on investing in bonds and currencies, it also manages a sizeable equity portfolio, which is valued at $228.5 million as of the end of June. Consumer discretionary and Basic Material sectors were WCG Management’s top sectoral picks, amassing 37% and 19% of the fund’s equity portfolio at the end of the second-quarter. The filing also revealed that during the quarter WCG Management initiated a stake in 12 stocks, sold out of 3 stocks, made additional purchases in 5 stocks, as well as reduced its holding in 5 stocks. Although McDonald’s Corporation (NYSE:MCD) remained among WCG Management’s top three picks at the end of second-quarter from first-quarter, CF Industries Holdings, Inc. (NYSE:CF) and Constellation Brands, Inc. (NYSE:STZ) climbed a couple of positions after the fund raised its exposure to them. Since the fund increased its stake in all of its top three holdings, dissecting those stocks and understanding why WCG Management’s picked them can be quite fruitful for investors.
But before we proceed to that, it begs the question, why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bullish environment. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has shown that hedge funds’ long stock picks generate strong risk-adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 123% over the last 36 months and outperformed the S&P 500 Index by 65 percentage points (see the details here).
Coming back to WCG Management’s top picks, the fund increased its stake in CF Industries Holdings, Inc. (NYSE:CF) by 9% to 410,680 shares, worth $26.31 million, as of June 30. The fertilizer maker announced a 5-for-1 stock split on May 18 and its stock started trading on a split-adjusted basis a month later. On the same day the company announced that it will be increasing production of urea-based products at its Courtright Nitrogen Complex in Sarnia, Ontario,. The company expects this project will be completed by the fourth quarter of 2017 and will cost around $85 million. On July 1, the company announced the acquisition of Yara International ASA (ADR)(OTCMKTS:YARIY)’s 50% equity stake in GrowHow UK Limited for $580 million, making GrowHow a fully owned subsidiary of CF Industries Holdings, Inc. (NYSE:CF). Recent reports have highlighted that the company might be in advanced talks with Dutch fertilizer maker OCI NV for a merger. Some other funds that hold shares of CF Industries in their portfolio, include Jean-Marie Eveillard‘s First Eagle Investment Management, which initiated a stake of 400,000 shares during the first quarter.
Moving on to WCG Management’s second top pick, McDonald’s Corporation (NYSE:MCD). The fund had initiated a stake in the company during the first-quarter and acquired an additional 1% during the April-June period. As of June 30, WCG Management owns over 250,800 shares of McDonald’s Corporation (NYSE:MCD) worth $23.85 million. On July 23, the fast food giant reported its second-quarter earnings. Although EPS of $1.26 on revenue of $6.50 billion came above analysts’ consensus estimate, a decline of 0.7% in worldwide same-store sales was above the 0.6% decline that analysts anticipated. The worst numbers for the company came from the Asian region, where comparable store sales declined by 4.5% and operating income went down 26 percent. After cracking down below $95 in early January, McDonald’s Corporation (NYSE:MCD)’s stock has mostly remained in the $95-$100 range throughout 2015. With sales declining quarter after quarter, the company is working out on several different strategies to combat that including all-day breakfast which it will launch in its U.S. stores by the end of this year. There also have been recent rumors that with the performance failing to improve, the company might be seriously considering spinning off its real estate holdings into a real estate investment trust. Among the hedge funds we track, Mason Hawkins‘ Southeastern Asset Management held the largest stake of over 18.8 million shares of McDonald’s Corporation (NYSE:MCD) at the end of March.
WCG Management also increased its stake in Constellation Brands, Inc. (NYSE:STZ) by 20% on the quarter to some 179,600 shares worth $19.088 million. A month ago, the company reported its first-quarter earnings with EPS of $1.26 for significantly above the $1.07 EPS reported for the same quarter last year, while revenue of $1.63 billion was up by 6.9% year-over-year. On July 24, the company announced that the size of its board would be increased to 10 members from 9 members would include Daniel J. McCarthy, President and Chief Executive Officer of Frontier Communications Corp (NASDAQ:FTR). Michael Lowenstein’s Kensico Capital and Boykin Curry’s Eagle Capital Management both reduced their stakes in the company by 3% during the January-March quarter.