Patrik Brummer founded Zenit Asset Management in 1999. Because of good stock picking and in-depth research, the Stockholm, Sweden-based fund has grown by leaps and bounds since inception. Given that the fund recently filed its 13F for the September 30 reporting period, let’s take a closer look at Zenit Asset Management’s top picks of Alibaba Group Holding Ltd (NYSE:BABA), Navient Corp (NASDAQ:NAVI), Alphabet Inc (NASDAQ:GOOGL), Santander Consumer USA Holdings Inc (NYSE:SC), and Yahoo! Inc. (NASDAQ:YHOO), and see what the smart money thinks of the Swedish investment firm’s top stock picks.
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 102% over the last 37 months and outperformed the S&P 500 Index by 53 percentage points (see the details here).
#5 Santander Consumer USA Holdings Inc (NYSE:SC)
Shares held (as of September 30): 1.69 million
Total Value (as of September 30): $34.17 million
Percent of Portfolio (as of September 30): 5.96%
After rallying to over $26-a-share in the middle of June, Santander Consumer USA Holdings Inc (NYSE:SC) is now trading at $17.50 and down by 8.16% year-to-date. Shares have retraced because former CEO Thomas Dundon left unexpectedly in July and because the company is exiting the personal lending sector to focus on its auto-lending business. Given that a wave of change will affect the auto industry over the next five years, investors aren’t sure how the changes will affect Santander, although analysts are still bullish on the company, having a consensus price target of $27.46, giving shares 56.92% upside from current levels. Lee Ainslie‘s Maverick Capital owned 10.57 million shares of Santander at the end of June.
#4 Alphabet Inc (NASDAQ:GOOGL)
Shares held (as of September 30): 56,683
Total Value (as of September 30): $34.36 million
Percent of Portfolio (as of September 30): 6.00%
Although Zenit Asset Management cut its Alphabet Inc (NASDAQ:GOOGL) holding by 75% in the third quarter, it still owned 56,683 shares, good for 6% of its U.S equity portfolio. With its world-class workforce and its immense free cash flow, Alphabet is on the bleeding edge of many technologies, including artificial intelligence and self-driving cars. Count drone delivery as another Alphabet frontier, as Reuters reports that Alphabet expects to be delivering packages to consumers with drones beginning in 2017. If Alphabet can deliver products faster than competitors, the company can challenge Amazon in e-commerce and become a truly diversified technology giant. As Alphabet’s moonshots mature, the increasingly diversified nature of the technology holding company will increase the stock’s valuation. Given the internet giant’s wide moat and reasonable forward P/E of 20.76, shares of Alphabet Inc are a good bet for long-term shareholders.
#3 Navient Corp (NASDAQ:NAVI)
Shares held (as of September 30): 3.54 million
Total Value (as of September 30): $40.8 million
Percent of Portfolio (as of September 30): 7.12%
Shares of Navient Corp (NASDAQ:NAVI) are down by 37.15% year-to-date, as investors worry the Consumer Financial Protection Bureau may take legal action against the company’s Navient Solutions Inc division over how the unit handles student loans. Navient Corp has also missed analyst earnings expectations for three out of the last four quarters. With a forward P/E of 6.4 and an improving U.S economy, at some point all the bad news will be priced into the stock and Navient Corp will be attractive in terms of risk/reward. Zenit clearly believes this is already the case, as it upped its holdings in Navient Corp by 67% in the third quarter to 3.54 million shares.
Zenit’s top two stock picks are inextricably entwined, as you’ll see on the next page.