Paul Singer’s Elliott Associates built a reputation as one of the fiercest activist hedge funds in the investment world. You can easily find an article about this fund by a major media company every week. Paul Singer doesn’t have any problem raising capital whenever he wants to. Yet, we aren’t impressed by its performance at all. During the 5 year period through the end of 2017, Elliott’s flagship hedge fund generated an average annual return of 9.7%. Considering that Elliott isn’t a market neutral hedge fund, these figures aren’t impressive.
Here is how we really know that Elliott isn’t that great at investing.
We have access to Elliott’s quarterly 13F stock picks between 1999 and 2017. We calculated the average returns of Elliott’s stock picks for each market cap bracket. For example, when you buy a portfolio of Elliott’s large-cap stocks within 2 weeks of the 13F filing deadline and hold on to those stocks for 3 months (until the next 13F filing period), you would have returned an average monthly gain of ONLY 0.04%. S&P 500 Total Return Index returned an average of 0.50% per month during the same period (read the details of this analysis here).
That’s not the worse part of the story. If you created an exact replica of Elliott’s 13F portfolio (i.e. using the same number of shares) and invested in the same manner we described above, you would have generated an average monthly return of only 0.53% between 2014 and 2017. S&P 500 Total Return Index returned 0.99% per month during this period. So, Singer’s overall equity portfolio actually underperformed the market by more than 5 percentage points per year over the last 4 calendar years.
This tells us that Elliott is extremely good at painting a picture of a successful hedge fund even though its overall stock picking ability has been worse than a monkey investing in passive index funds (Insider Monkey’s flagship strategy returned a cumulative of 121% since 2014 through the end of August and outperformed the passive index funds by more than 50 percentage points, so it pays to be smart monkey).
Anyway, yesterday in a 13D filing Elliott revealed that it started to abandon its large Mednax Inc. (NYSE:MD) bet. Last November Elliott launched an activist campaign targeting Mednax Inc., backed by its 7% economic exposure to the stock. It was “asking” Mednax to consider selling itself. Well, things haven’t gone according to the plan and Mednax shares gained a little since the revelation of that campaign (Elliott bought the MD shares at around $44 and the stock currently trades under $46). This isn’t a success story given the large increase in the stock market since last November.