According to a recent filing with the SEC, Ralph V. Whitworth‘s Relational Investors has shaved some 2.74 million shares off its holding in Magnum Hunter Resources Corp (NYSE:MHR). The current holding comprises 27.50 million shares that the firm owns indirectly through its affiliated funds, and represents about 13.2% of the company’s outstanding common stock. Relational also had to dispose of some 2.14 million warrants that gave the fund the right to buy the stock at a conversion price of $8.50, since it was highly unlikely that they would be exercised given the current trading levels. Magnum Hunter withdrew the registration of these derivatives.
Professional investors like Whitworth spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. However, we also know that 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. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned more than 142% and beaten the market by more than 83 percentage points since the end of August 2012, and by 4.6 percentage points in the first quarter of this year (see the details).
Founded in 1996, Relational Investors has some of the world’s largest pension funds as its clients. The firm’s investment philosophy revolves around using rigorous research to identify undervalued companies. The company strives to engage the management and board of the target companies in order to engage in a constructive dialogue to increase shareholder value. Currently the fund has about $2.87 billion in assets under management, while the market value of its public equity portfolio stood at $2.38 billion at the end of March. The fund’s top holdings at the end of the first quarter included Mondelez International Inc (NASDAQ:MDLZ), Hologic, Inc. (NASDAQ:HOLX), and Bunge Ltd (NYSE:BG). The consumer staples and industrials sectors each represented 36% and 31% of Relational’s portfolio value respectively.
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Recently, Magnum Hunter Resources Corp (NYSE:MHR) was downgraded by Imperial Capital to ‘Underperform’ from ‘In-line’ and its price target was cut to $.25 from $1.75. The main reason for this loss of confidence is the $252.04 million energy company’s cash position, which is deemed insufficient by Imperial given MHR’s debt burden. Although the company has previously announced liquidity initiatives to the tune of $300 million, Imperial believes that the target might be unrealistic. So far this year, Magnum Hunter Resources Corp (NYSE:MHR)’s stock has slumped by nearly 60%. The hedge fund interest, among those that we track, has dwindled significantly over the first quarter as only 10 firms had investments in the company totaling $121.82 million at the end of March compared to 15 funds with $193.13 million at the end of last year. Todd J. Kantor‘s Encompass Capital Advisors is one of them, owning 5.37 million shares valued at $14.33 million.
Moving on to Whitworth’s top picks, which have performed more than well enough to wipe out any losses from his Magnum Hunter position, Relational’s largest holding, Mondelez International Inc (NASDAQ:MDLZ) comprises 12.47 million shares valued at $449.97 million and represents almost 19% of the fund’s portfolio value. A position in the company was initiated during the first quarter of 2013. The stock has appreciated by more than 50% since then. Among the funds that we track, Nelson Peltz‘s Trian Partners is the largest stockholder of Mondelez International Inc (NASDAQ:MDLZ), owning some 48.02 million shares valued at $1.73 billion.
A holding in the $10.54 billion manufacturer of diagnostic products, medical imaging systems and surgical products, Hologic, Inc. (NASDAQ:HOLX), represents 18.02% of Relational’s portfolio value. The holding consists of 12.97 million shares valued at $428.28 million. So far this year Hologic, Inc. (NASDAQ:HOLX)’s stock has appreciated by a hefty 40%. In comparison, the medical instruments & supplies industry has only gained 4.48% during the same period. Famed activist investor Carl Icahn of Icahn Capital LP is the largest stockholder of Hologic, Inc. (NASDAQ:HOLX) among those we track, as it owns some 34.15 million shares valued at $1.13 billion.
Relational’s holding in Bunge Ltd (NYSE:BG) consists of 4.95 million shares valued at $407.41 million. The stake represents about 3.39% of the company’s outstanding stock and 17.15% of the fund’s portfolio value. Although up by more than 21% over the past year, Bunge Ltd (NYSE:BG)’s stock performance has been less inspiring this year, as it is trading nearly sideways. In its financial results for the first quarter, Bunge Ltd (NYSE:BG) beat estimates for the bottom line, but failed to match analysts’ expectations for the top line. Clint Carlson‘s Carlson Capital is the second-largest stockholder of Bunge after Relational, among the investors that we track, as it owns some 1.85 million shares valued at $152.37 million.
Disclosure: None
