Highbridge Capital Management, co-founded by billionaire Glenn Russell Dubin, who remains the firm’s chairman, enjoyed a solid first quarter of 2015. The firm’s large and diversified equity portfolio, which was valued at $7.82 billion at the start of the year, delivered weighted average returns of 1.8% from its 501 long positions in companies with market caps of at least $1 billion, based on the size of those positions at the start of the year. Note that Highbridge’s actual returns may be different from our calculated returns, based on a multitude of factors. Our returns metric does however give us a pretty good idea as to the performance of the fund’s equity portfolio.
Let’s take a look now at some of the holdings which dominated the upper positions of Highbridge’s equity portfolio, particularly the fund’s tech picks. We’ll start with Twitter Inc (NYSE:TWTR), which was one of the quarter’s top performing stocks and the best performing large-cap stock. Twitter soared 39.62% during the quarter to pop above $50 for the first time since October. Highbridge seemingly timed the pop perfectly, as it opened a new long position in Twitter consisting of 1.77 million shares during the fourth quarter, valued at $63.37 million, making it the fund’s 16th-most valuable long position.
Twitter Inc (NYSE:TWTR) used its relatively unheralded acquisition (at the time) of Periscope to generate a good deal of positive buzz, with the live-streaming app replacing Meerkat almost overnight as the de-facto top streaming app for the platform. It’s thought Periscope could add a whole new social layer to Twitter and attract a batch of new users to the platform. Rumors have also swirled for weeks that Twitter could be an acquisition target itself of tech giant Google Inc (NASDAQ:GOOGL), which has also helped drive shares upward. Lastly, while user growth has slowed, Twitter Inc (NYSE:TWTR)’s most recent earnings report showed positive steps towards better monetizing existing users. John Thaler’s JAT Capital Management scored big on Twitter during the quarter, having both the largest position in terms of size, and the greatest exposure to the stock among any fund in our database.
Speaking of Google Inc (NASDAQ:GOOGL),Highbridge also opened a sizable new long position in the tech giant consisting of 135,859 class A shares valued at $72.10 million. In fact the new position immediately vaulted Google to the top spot in Highbridge’s equity portfolio among long positions. While Google didn’t enjoy the explosive quarter that Twitter did, its class A shares were up a solid 4.53% during the quarter. Google Inc (NASDAQ:GOOGL)’s YouTube is facing some new competition from Vessel, which is trying to lure content creators away with more favorable payment terms and even guaranteed contracts for exclusive content. Boykin Curry’s Eagle Capital Management remains the largest shareholder of Google amongs the funds we track.
One of the positions that eclipsed Google’s in size was not a long position, but rather a position of 660,000 shares underlying put options in Apple Inc. (NASDAQ:AAPL), which were valued at $72.85 million. Highbridge also owns a smaller long position in Apple of 163,841 shares valued at $18.09 million, with both positions having been slashed by at least 50% during the fourth quarter. Apple Inc. (NASDAQ:AAPL) of course enjoyed strong returns in the first quarter, of 13.17%, and sentiment remains mostly bullish towards the iPhone maker, with it still trading at a P/E of just 13.
While official numbers have yet to come in, it appears the Apple Watch may exceed the more muted recent sales expectations for the device, which has been pegged to sell anywhere from 20 million to 100 million units in its first calendar year on sale. Apple Inc. (NASDAQ:AAPL) is also expected to announce moves to further increase shareholder value during its next earnings report later this month, something activist investor Carl Icahn (the largest Apple shareholder in our database) has aggressively pushed for in recent months.
Hewlett-Packard Company (NYSE:HPQ) is another of Highbridge’s top tech picks, though one that didn’t perform as well in the first quarter. Highbridge owns 1.52 million shares valued at $60.92 million in the computer manufacturer. Shares of Hewlett-Packard Company (NYSE:HPQ) tumbled by 21.96%, and analysts believe it may take a miracle acquisition to turn things around. Despite the doom and gloom, shares of Hewlett-Packard Company (NYSE:HPQ) more than doubled over the course of 2013 and 2014, thanks to its expansion into services sectors like enterprise and cloud. Richard Pzena’s Pzena Investment Management remains a believer in HP’s turnaround efforts, holding a position of 18.23 million shares.
QUALCOMM, Inc. (NASDAQ:QCOM) also suffered through a poor quarter, as shares dipped by 6.17%. That prompted fund JANA Partners to launch a new activist campaign concerning Qualcomm, as it revealed a large new position and outlined some of the many ways in which QUALCOMM, Inc. (NASDAQ:QCOM) could improve its operations, as well as shareholder value. Among other things, JANA has expressed that Qualcomm should spin off its chip business, cut costs, shake up its board, and accelerate its already announced share buyback measures. Despite under-performing the S&P 500 over the past five years, Qualcomm CEO Steve Mollenkopf was one of the top-paid executives in 2014, earning $60 million. In addition to JANA’s large new position, billionaire Ken Fisher also has a large position in Qualcomm.
As you see, hedge funds and other big money managers like Dubin prefer to have the largest amounts of their capital invested in large and mega-cap stocks because these companies allow for much greater capital allocation, which is important taking into account that the global hedge fund industry has swollen to nearly $3.0 trillion. That’s why if we take a look at the most popular stocks among funds (we track more than 700 in our database), we won’t find any mid- or small-cap stocks there. However, our backtests of hedge funds’ equity portfolios between 1999 and 2012 revealed that the 50 most popular stocks among hedge funds underperformed the market by 7 basis points per month. On the other hand, we found that we can combine the pricing inefficiencies among small-cap picks with hedge fund expertise and obtain significant results. This was confirmed through backtesting and in forward tests of our small-cap strategy since 2012. The strategy, which involves imitating the 15 most popular small-cap picks among hedge funds managed to provide gains of more than 137%, beating the broader market by over 82 percentage points through the end of March (see the details).
Disclosure: None
