Senator Investment Group, which is led by former Merrill Lynch colleagues, Douglas Silverman and Alexander Klabin, recently filed its 13F form with the Securities and Exchange Commission. While Silverman brought his expertise in event-driven investing to the table upon the firm’s establishment in 2008, Klabin brought his skills in value investing, distressed debt, and special situations investing. The firm currently has about $11.8 billion in regulatory assets under management, while the market value of its public equity portfolio increased to $11.49 billion by the end of June from $10.42 billion at the end of the previous quarter. The consumer discretionary sector formed the largest proportion of the portfolio at 24%, followed by a 15% contribution from the healthcare sector. Although the fund managers have a knack for seeking out merger arbitrage opportunities, there are some newly initiated companies among the top equity picks that do not fit this bill. These include Macy’s, Inc. (NYSE:M), Host Hotels and Resorts Inc (NYSE:HST), and Citigroup Inc (NYSE:C), which we’ll dig a bit deeper into.
We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about six basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated ten percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by 60 percentage points (118% return vs. S&P 500’s 57.6% gain) over the last 35 months (see the details here).
Coming back to the non-merger arbitrage picks, a Macy’s, Inc. (NYSE:M) position was initiated of some 6.50 million shares valued at $606.92 million during the June quarter. The holding represents about 5.28% of the fund’s portfolio and amasses nearly 2% of the company’s outstanding shares. The stock price of the $21.24 billion retail company has slid by 3.79% year-to-date. JP Morgan recently downgraded Macy’s, Inc. (NYSE:M) to ‘Neutral’ from ‘Overweight’ after the company missed earnings estimates in its financial results for the second quarter. While its watch and jewelry sales continued to slump, the athletic segment strengthened significantly, along with out-performance from other brands, and Macy’s management seems upbeat about the company’s turnaround. Ross Margolies‘ Stelliam Investment Management is one of the prominent shareholders of Macy’s, Inc. (NYSE:M), though it decreased its holding by 2% in the second trimester to 1.23 million shares valued at $82.65 million.