We recently profiled billionaire George Soros’ Soros Fund Management and the fund’s three new tech picks. Today, we’ll take a look at the fund’s top new energy picks based on its recently filed 13F for the reporting period of March 31, which has disclosed the legendary fund manager’s positions, new and old.
First a quick word on why we track hedge fund activity. In 2014, equity hedge funds returned just 1.4%. In 2013, that figure was 11.3%, and in 2012, they returned just 4.8%. These are embarrassingly low figures compared to the S&P 500 ETF (SPY)’s 13.5% gain in 2014, 32.3% gain in 2013, and 16% gain in 2012. Does this mean that hedge fund managers are dumber than a bucket of rocks when it comes to picking stocks? The answer is definitely no. Our small-cap hedge fund strategy, which identifies the best small-cap stock picks of the best hedge fund managers returned 28.2% in 2014, 53.2% in 2013, and 33.3% in 2012, outperforming the market each year (it’s outperforming it so far in 2015 too).
What’s the reason for this discrepancy you may ask? The reason is simple: size. Hedge funds have gotten so large, they have to allocate the majority of their money into large-cap liquid stocks that are more efficiently priced. They are like mutual funds now. Consider Ray Dalio’s Bridgewater Associates, the largest in the industry with about $165 billion in AUM. It can’t allocate too much money into a small-cap stock as merely obtaining 2% exposure would really move the price. In fact, Dalio can’t even obtain 2% exposure to many small-cap stocks, even if he essentially owned the entire company, as they’re simply too small (or rather, his fund is too big). This is where we come in. Our research has shown that it is actually hedge funds’ small-cap picks that are their best performing ones and we have consistently identified the best picks of the best managers, returning 139% since the launch of our small-cap strategy compared to less than 60% for the S&P 500 (see the details).
In the first quarter, Soros’ team purchased 2.41 million shares of Noble Energy, Inc. (NYSE:NBL) with a value of $117.97 million as of the reporting period. Noble Energy Inc. (NYSE:NBL) made headlines last week when it agreed to purchase Rosetta Resources (ROSE) for about $2 billion in an all-stock deal. Noble will now have access to the Eagle Ford and Permian areas, two of the most economical resource plays in the United States. But Noble Energy shares have still had a tough time in 2015 so far amid relatively low oil prices, leading to shares that are down almost 7% year-to-date. Boykin Curry’s Eagle Capital Management is the largest shareholder among the funds we track followed by Israel Englander’s Millenium Management. Noble Energy Inc. (NYSE:NBL) is also one of the stocks Paul Singer is bullish on.
In the first quarter of 2015, Soros’ team opened up a position in California Resources Corp (NYSE:CRC) consisting of 10.67 million shares with a value of $81.20 million. California Resources Corp (NYSE:CRC) has been on a tear in 2015 with shares rising by 43%, compared to the S&P 500 ETF (SPY) which is up by just 3.6% over the same time frame. California Resources Corp (NYSE:CRC) is an E&P company that was spun out of Occidental Petroleum (OXY) in 2014 and operates, as the name hints, exclusively in California. While California Resources Corp (NYSE:CRC) may be a stock slightly under-the-radar, we wrote about Eric Mandelblatt’s Soroban Capital Partners taking an almost 10% activist stake in the company back in early February and shares are up by 30% since then.
Not all of the energy plays were in oil and gas. As of the end of the first quarter, Soros Fund Management held 638,503 shares of NextEra Energy Inc (NYSE:NEE) with a value of $66.44 million, another of its new energy picks. NextEra Energy Inc (NYSE:NEE) is a $46 billion market cap renewable energy company. It owns Florida Power & Light company, the largest electric utility in the state. It also operates wind farms in California and is involved in solar and nuclear energy. NextEra Energy Inc (NYSE:NEE) shares haven’t done much this year, with the stock down by 3.5% year-to-date. Israel Englander’s Millenium Management is the largest shareholder among the funds we track, followed by Daniel Och’s OZ Management.
Of Soros’ new energy picks, Cenovus Energy Inc (USA) (NYSE:CVE) was the worst performing stock, falling by 14.4% year-to-date. His firm held 2.84 million shares of Cenovus Energy Inc (USA) (NYSE:CVE) as of the end of the first quarter with a value of $47.82 million. Cenovus Energy Inc (USA) (NYSE:CVE) is a $17 billion market cap oil sands company operating in Canada. Canadian energy stocks were hammered on May 6 after Canadian voters elected the pro-labor New Democratic Party in the province of Alberta, where much of Canada’s oil sands activity is located, ending the 44-year Progressive Conservative Dynasty. The NDP, led by Rachel Notley, a 51-year-old lawyer, promised to raise the corporate tax rate to 12% from 10% and will likely raise royalties on oil as well. Jean-Marie Eveillard’s First Eagle Investment Management and Israel Englander’s Millenium Management are the top shareholders of Cenovus Energy among the funds we track.