The year 2016 has not been good for hedge funds, which are currently being criticized over their general underperformance. This year has also been bad for billionaire Leon Cooperman’s Omega Advisors In September, the US Securities and Exchange Commission accused Cooperman and his firm of insider trading. If proven guilty, the billionaire could end up selling some of his holdings to pay for the penalties. It has gotten to a point that the fund is said to be setting aside some of its assets to pay for legal costs in case they spiral beyond projections.
Meanwhile, based on Insider Monkey’s comprehensive back-test, Omega Advisors returned 0.04% per month between 1999 and 2012 and -0.42% per month between 2008 and 2012 from its positions in companies with market caps above $20 billion, lagging behind S&P 500 returns of 0.32% per month between 1999 and 2012 and 0.29% per month between 2008 and 2012. To be clear, Cooperman is a good stock picker, he is just not good at picking large-cap stocks. Cooperman’s all stock picks outperformed the S&P 500 Index by more than 6.5% annually between 1999 and 2012. So, you can potentially achieve much higher returns if you ignore his large-cap picks, like Alphabet Inc (GOOG) or Microsoft Corporation (MSFT), and focus on his smaller stock picks.
Amid the negative perception on hedge funds and some of the people that run them, Insider Monkey points out that there still are high-performing hedge funds worth the investment; the 30 mid-cap stocks that these hedge funds had selected went on to generate a return of 18% in the 12 months ending November 21, surpassing the S&P 500 Index’s 7.6% return in the same period. And out of 659 hedge funds tracked by Insider Monkey, 627 funds containing at least 5 long positions in companies valued at $1 billion or more have gained 8.3% in returns on average from their long picks, a full 5.0 percentage above S&P 500 ETF returns. Nevertheless, it pays to be aware of the stock picks that Cooperman made.
As of the third quarter, Omega Advisors decreased its holding in American International Group Inc (NYSE:AIG) by 17% to about 2.40 million shares valued at $142.28 million. The insurance company has engaged in a couple of M&A transactions last month, during which it agreed to transfer its life insurance business in Japan to FWD Group and closed the sale of the International Finance Centre Seoul to Brookfield Asset Management Inc (NYSE:BAM). Recently, Barclays upgraded the insurer to “Outperform” from “Market Perform” and attached a $75 price target, projecting that the company will benefit from federal tax cuts in 2018.
Year to date, the company’s stock rose by 6%. Among hedge funds tracked by Insider Monkey, 82 held positions in American International Group Inc (NYSE:AIG) at the end of the third quarter. These positions, worth more than $6.99 billion in the aggregate, represented around 12.30% of the outstanding stock.
Omega Advisors also unloaded 38% of its Alphabet Inc (NASDAQ:GOOG) position in the third quarter, ending the period with 161,156 class A shares worth $129.58 million. The company recently formed a new unit called Waymo, which consists of the self-driving car project formerly under Google. Though the new unit, Alphabet is planning to work with other companies for the self-driving technology, gearing its focus beyond creating a separate vehicle without steering, while putting the project into the position of potentially generating revenue sooner than previously expected. Among hedge funds tracked by Insider Monkey, 134 held positions in Alphabet Inc. (NASDAQ: GOOG) at the end of the third quarter, up from 126 in the second quarter.