Billionaire Israel Englander of Millennium Management is taking the unprecedented step of launching a joint venture to keep the largest of his 170 trading teams in the fold. By the end of 2015 Izzy and Igor Tulchinsky, who manages a 400-person team dubbed WorldQuant LLC, will launch the venture. The new venture will allow Tulchinsky, who currently manages about $4 billion of Izzy’s money, to collect outside money in addition to broadening his quantitative trading strategies. His team will continue to manage money for Millennium Management alongside the new, as-yet-unnamed venture. The move is the first such move by Izzy and allows him to retain one of his top teams, while allowing Tulchinsky to achieve more autonomy and money-making capability.
Massive hedge fund like Millennium Management spend immeasureable time and resources conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. However, while Millennium’s returns have outperformed the market since inception, the returns of hedge funds on the whole have not been good for several years, underperforming the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds performed far better than their large-cap picks, which is where most of their money is invested and why their performances as a whole have been poor. A portfolio of the 15 most popular small-cap stocks among funds outperformed the S&P 500 Total Return Index by 95 basis points per month between 1999 and 2012 in backtesting. The impressive results of this strategy got even better in forward testing after the strategy went live at the end of August 2012. A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned more than 137% and beaten the market by more than 82 percentage points since then, and by 4.6 percentage points in the first quarter of this year (see the details).
Let’s take a look now at Millennium’s top picks heading into 2015 and their performance thus far, beginning with its top long position in NextEra Energy Inc (NYSE:NEE),which reports its latest financial results tomorrow. Analysts are projecting earnings per share (EPS) of $1.28 for NextEra Energy Inc (NYSE:NEE), which recently acquired Hawaiian Electric, the largest utility company in Hawaii, serving 95% of the island state’s residents with power. NextEra Energy Inc (NYSE:NEE) dipped slightly, by 1.39% in Q1, following a big 2014 when it gained over 25%. Millennium’s 3.03 million shares were valued at $322.41 million, the firm’s largest position, though the stake represented just 0.68% of its portfolio, given its massive size. Another billionaire, Daniel S. Och, was the only investor in our database with a larger position in NextEra than Millennium, was only the first of many energy bets in Millennium’s top ten.
Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) was Izzy’s top healthcare pick, and it was a solid one with shares returning just under 9% during the first quarter. Izzy’s position of 5.29 million shares was valued at $304.42 million entering 2015. Izzy was just one of several billionaires who were crazy about Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) at the end of 2014, a list which also included George Soros. Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)will announce its own earnings one day after NextEra, on Thursday, with Wall Street anticipating EPS of $1.25. Teva has beaten estimates in five of its last six earnings reports.
Izzy’s next energy pick was in Pioneer Natural Resources (NYSE:PXD), which also stood as a top energy stock among billionaires. Izzy was one of eight billionaires with an investment in Pioneer Natural Resources (NYSE:PXD), which had returns of 9.88% during the quarter. Izzy had the second largest investment among those exceedingly wealthy investors, with his 1.92 million shares valued at $286.50 million trailing only Andreas Halvorsen’s much larger holding of 6.59 million shares. Pioneer Natural Resources (NYSE:PXD) is enjoyed a strong Q2 as well, up nearly 5% in April on strengthening oil prices.
Cameron International Corporation (NYSE:CAM) is Millennium’s next pick and another of its top energy picks. The fund was extremely bullish on both Cameron and Pioneer during the fourth quarter, increasing its positions by over 1,200% in each. In Cameron International Corporation (NYSE:CAM)’s case it was over 1,400%, to 5.69 million shares valued at $283.99 million. Where Pioneer excelled during Q1 however, Cameron International Corporation (NYSE:CAM) struggled, having a nearly identical performance to Pioneer, but on the flip-side, at -9.67%. Cameron has made a big move in April though, up by more than 17% during the month to make up for the Q1 losses after beating earnings estimates on April 23 and showing improved margins.Another large fund that utilizes quantitative analysis, D E Shaw, also had a large position in Cameron (though also small in relation to its portfolio’s size).
Izzy’s fifth and final top pick was McDonald’s Corporation (NYSE:MCD), which also stands as one of the most stable dividend stocks, having consistently increased its cash dividend payments to shareholders over its lengthy history as a publicly-traded company. With McDonald’s Corporation (NYSE:MCD) coming off a disappointing 2014, one of its worst years ever, the company made the difficult decision to replace CEO Don Thompson with new leader Steve Easterbrook. Billionaire investors Bill Ackman and Larry Robbins have both expressed confidence was the change was a good one long-term for McDonald’s. In the first quarter shares rose by 4.90%, a strong start to the year and good news for Izzy who held a 2.63 million share position in McDonald’s Corporation (NYSE:MCD) valued at $246.38 million entering 2015.
Disclosure: None
