Mark Kingdon founded Kingdon Capital, a New York-based macro and long/short hedge fund, in 1983 with $2 million in assets under management (AUM). Since then the fund has grown to nearly $4 billion in AUM. Kingdon started his career in the financial world by joining AT&T Inc. (NYSE:T)’s pension fund administration in 1973 after completing his MBA from Harvard University. Following his stint at AT&T, Kingdon went on to work for Century Capital Associates in 1975 where he stayed until founding Kingdon Capital. Although 2015 isn’t turning out well for equity markets overall, with returns remaining flattish, Kingdon Capital’s picks are performing quite well for the year.
Research done by Insider Monkey shows that the fund’s picks returned 9.2% for the second quarter and are up by 22.4% year-to-date. An important thing to understand though is that the second quarter returns have been calculated by measuring the weighted average returns of the 94 stocks with a market cap of over $1 billion that Kingdon Capital was long in on March 31, positions which were subject to change throughout the second quarter. The returns also exclude investments in bonds, options, and short positions, so they may not accurately reflect the total returns of a fund. In this article we are going to analyze how Kingdon Capital’s top four stock picks as of the end of the first quarter, namely Horizon Pharma PLC (NASDAQ:HZNP), Tyson Foods, Inc. (NYSE:TSN), Visteon Corp (NYSE:VC) and CDK Global Inc (NASDAQ:CDK) helped it to outperform the overall market in the second quarter.
But first, let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith (and money) in large-cap stocks. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 81 percentage points, returning over 139% (read the details here). Follow the smart money into only their best investment ideas, all while avoiding their high fees.
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Even though Kingdon Capital sold off 40% of its stake in Horizon Pharma PLC (NASDAQ:HZNP) during the January-March period, dropping its position to 3.70 million shares worth $96.02 million as of March 31, the company still remained its top pick at the end of the quarter. Shares of Horizon Pharma PLC (NASDAQ:HZNP) have had a meteoric rise since August of last year, up by over 350%, owing to a phenomenal rise in sales of the company’s drugs like Duexis, Vimovo, and Pennsaid 2%, coupled with multiple acquisitions made by it during the period. That rally extended itself into the second quarter as well, with shares going up by over 33%. Horizon Pharma PLC (NASDAQ:HZNP) recently upped its bid to acquire Depomed Inc (NASDAQ:DEPO) to $33 per share from the $29.25 that it had offered earlier this month. Kevin Kotler‘s Broadfin Capital, another hedge fund with a substantial stake in Horizon Pharma PLC (NASDAQ:HZNP), also reduced its stake in the company by 21% during the first quarter.
Moving on to Kingdon Capital’s second top pick at the end of first quarter, Tyson Foods, Inc. (NYSE:TSN). The fund held around 2.11 million shares of the company worth $81 million at the end of March. It was the only stock among Kingdon Capital’s top four picks in which the fund didn’t reduce its stake during the first quarter, instead increasing it by 3%. Shares of Tyson Foods, Inc. (NYSE:TSN) jumped 11% during the second quarter led primarily by the better than expected fiscal second quarter numbers the company posted on May 4. For the fiscal third quarter, analysts expect Tyson Foods, Inc. (NYSE:TSN) to declare EPS of $0.93, well above the $0.73 EPS it reported for the same period last year. Dinakar Singh’s TPG-Axon Management LP initiated a stake in Tyson Foods, Inc. (NYSE:TSN) during the January-March quarter, buying over 3.7 million shares of the company.