Nathaniel August’s Mangrove Partners had 18 positions at the end of 2014 in companies valued at $1 billion or more. Based on those positions, we’ve calculated Mangrove’s weighted average returns at 8.4%, easily besting the market in Q1 (the S&P 500 returned just 0.9%). We’ll take a look at a few of Mangrove’s biggest positions and top performers, which includes Tesla Motors Inc (NASDAQ:TSLA); at least as far as the former is concerned.
Firstly, let’s explain why we track under-the-radar hedge funds like Mangrove Partners. Most people know that funds in general haven’t performed very well over the past six or seven years, collectively under-performing the market each year. We wanted to know why, and if there were any patterns we could use based on funds’ picks that would provide investors with a good chance of seeing big returns. So we analyzed the historical stock picks of hedge funds 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 exceptional 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 80 percentage points since then (see the details).
Mangrove’s second-largest position was in Tesla Motors Inc (NASDAQ:TSLA). The position consists of 13,500 convertible notes that Mangrove bought during the first quarter of 2014, when Tesla made a large bond offering to help fund the development of the company’s Gigafactory. Tesla offered $800 million worth of 0.25%, five-year notes and $1.2 billion worth of 1.25%, seven-year notes at that time. Mangrove’s holding however is actually shares of the 1.5% bond offering Tesla Motors Inc (NASDAQ:TSLA) made in May, 2013, which are also five-year notes, due June 1, 2018. Those notes had a value of $25.04 million at the end of 2014, and are convertible at a 35% premium from the share price at the time of their issuance. As Tesla is up over 100% since then, the bonds can be converted at any time. Tesla shares were down by just over 15% in the first quarter, which was poor news for long investors like Daniel Benton of Andor Capital Management, who had 17.71% exposure to the electric automaker’s stock.
Carrizo Oil & Gas, Inc. (NASDAQ:CRZO)’s shares had a big quarter, darting upwards by 19.35%. Mangrove’s holding in the company was its third-largest long position, consisting of 448,156 shares valued at $18.64 million. The position was increased by 68% during the fourth quarter, one in which Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) fell by 25%. Mangrove clearly saw a rebound in the oil & gas production company’s near future, and were certainly correct. With oil prices now beginning to rise, Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) has continued to improve thus far in the second quarter, up by another 8% so far in April. That was good news for billionaire Ken Griffin, who also saw a rebound in the world for Carrizo and raised his position by 2,551% during the fourth quarter to over 1.60 million shares.