A portfolio formed around a smid-cap strategy offers the best of two worlds: landing comfortably between the relatively unknown nature of small-cap companies, which results in greater alpha opportunities, and the opportunity to benefit from the less volatile nature of larger mid-caps, something which is absent from a small-cap only strategy. In this regard we decided to take a closer look at how Jeffrey Altman has geared his fund, Owl Creek Asset Management‘s portfolio towards smid-cap companies with market caps of between $5 billion and $10 billion.
Jeffrey Altman graduated from Tulane University in 1988. Prior to establishing Owl Creek in June 2001, he worked as a portfolio manager at Franklin Mutual Advisers, LLC, where he focused on distressed securities. With regards to the fund’s performance during the financial crises, Owl Creek returned 40% in 2007, but lost 9% in the following year. In 2013 the fund’s bet on the Japanese economy paid off as it returned about 48% that year. Currently, the fund has about $5.82 billion worth of assets under management and the market value of its public equity portfolio stood at $1.85 billion at the end of March. The fund’s top smid-cap picks included Iron Mountain Inc (NYSE:IRM), Hertz Global Holdings Inc (NYSE:HTZ), and Service Corporation International (NYSE:SCI), which were three of its top six stock picks overall.
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At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 142% and beating the market by 83 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.
Altman trimmed the stake of his second-largest equity holding overall, in Iron Mountain Inc (NYSE:IRM), by 2% during the fourth quarter to 4.40 million shares valued at $160.53 million. The holding represents 2.09% of the $6.74 billion provider of information management services’ outstanding common stock and 8.67% of Owl Creek’s portfolio value. Although still up slightly, by 3.29% over the past year, Iron Mountain Inc (NYSE:IRM)’s stock has slumped by over 17% year-to-date. Recently, Iron Mountain Inc (NYSE:IRM) entered into a binding Scheme Implementation Deed to acquire its Australian rival Recall Holdings for $2.6 billion. However, analysts don’t see this move resolving the company’s cash shortfall issues. Jeffries downgraded Iron Mountain Inc (NYSE:IRM) to ‘Underperform’ from ‘Hold’ and revised its price target downwards to $29 from $33. According to our database, Jonathan Jacobson‘s Highfields Capital Management is the largest stockholder of Iron Mountain Inc (NYSE:IRM), holding some 6.17 million shares valued at $224.91 million.