2017’s Billion-Earning Hedge Fund Managers All Love These Surprising Stocks

Michael Platt of BlueCrest Capital cemented his position atop the list of highest-earning hedge fund managers, taking home a cool $2 billion in earnings in 2017. Platt, who finished in a tie atop the 2016 list with earnings of $1.5 billion, was one of four money managers to earn over $1 billion last year according to Forbes data. Joining him were Jim Simons of Renaissance Technologies ($1.8 billion) who tied Platt for first place in 2016, David Tepper of Appaloosa Management ($1.5 billion), and Ken Griffin of Citadel Investment Group ($1.4 billion).

Griffin had the greatest leap in earnings from 2016, with his total jumping by $900 million. Citadel’s main funds, Kensington and Wellington, gained 13% in 2017, a big improvement over Citadel’s 5% returns in 2016, though they nonetheless failed to beat the market. Tepper’s earnings doubled from 2016, which helped him purchase the NFL’s Carolina Panthers earlier this month for $2.2 billion. The biggest fall from grace was reserved for Ray Dalio of Bridgewater Associates, who earned $1.4 billion in 2016, but “only” $900 million last year.

While impressive, the bloated earnings figures are as much a sign of hedge funds’ exorbitant fees as they are performance. Many massive investment firms like Bridgewater and Citadel pour billions of dollars (and rake in millions in fees) into nothing but hugely popular stocks like Apple Inc. (NASDAQ:AAPL) and Facebook Inc (NASDAQ:FB). With so much money to invest, they’re all but forced to focus the bulk of their capital on the same popular mega-caps that feature just as prominently in low-cost index funds and will do little to help them beat the market.

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Below, we’ll look at three interesting (read: not mega-cap tech) stocks that were owned by all four of the billion-dollar-earning hedge fund managers’ firms as of March 31, 2018.

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Centene Corp (NYSE:CNC)

Share Ownership of Centene Corp (NYSE:CNC): Appaloosa Management – 1.22 million, BlueCrest Capital Management – 3,172 (new position), Citadel Investment Group – 99,336, Renaissance Technologies – 297,716

Centene Corp (NYSE:CNC) was one of several healthcare stocks that sold off towards the end of January when news broke that Amazon.com, Inc. (NASDAQ:AMZN), JPMorgan Chase & Co. (NYSE:JPM), and Warren Buffett’s Berkshire Hathaway were joining forces to create a company called ABC that would be focused on lowering the health costs of the firms’ 1.2 million employees combined. It was expected the move signaled Amazon’s entry into the pharmacy supply chain, which sent jitters throughout the industry, though just ten weeks later Amazon had officially put any such plans on hold.

Meanwhile, Centene Corp (NYSE:CNC) has rallied nicely since the end of March, pushing its year-to-date gains to 13%. The health insurer grew its revenue by 19.5% in 2017 and its net income by 46.12%, though operating income declined slightly. Centene was forced to scale back its 2018 earnings per share estimates last month due to delays in the closing of its acquisition of Fidelis, which will be converted from a non-profit insurer into a for-profit one as part of the deal. However, Centene still anticipates the deal will add to its earnings per share in 2018.

On the next page we’ll look at two more stocks that were owned by all four of the firms managed by 2017’s billion-earning hedge fund managers as of March 31.

NRG Energy Inc (NYSE:NRG)

Share Ownership of NRG Energy Inc (NYSE:NRG): Appaloosa Management – 6.73 million, BlueCrest Capital Management – 46,942 (new position), Citadel Investment Group – 1.63 million, Renaissance Technologies – 7.18 million

NRG Energy Inc (NYSE:NRG) has been red-hot since late-2016, more than doubling in value, greatly outpacing the sluggish utilities sector in the process. That trend has continued in 2018 despite a pullback during the first two months of the year, which may be what prompted BlueCrest to open a position in the stock.

The company’s transformation plan that was announced last July appears to be paying dividends, as NRG’s first-quarter results released at the beginning of this month provided the latest jolt of energy to the stock, courtesy adjusted earnings of $1.03 per share and revenue of $2.42 billion, both of which topped estimates.

While all four of the top-earning hedge fund managers own NRG, Paul Singer’s activist hedge fund Elliott Management, which was instrumental in pushing for and shaping that transformation plan, sold out of the stock in the first-quarter. Singer, who manages a more concentrated portfolio than any of those four managers, likely felt his work on the stock (and the handsome returns that came along with it) was done and that the capital tied up in it could be better deployed elsewhere now.

Huntsman Corporation (NYSE:HUN)

Share Ownership of Huntsman Corporation (NYSE:HUN): Appaloosa Management – 3.74 million, BlueCrest Capital Management – 323,250 (new position), Citadel Investment Group – 483,533, Renaissance Technologies – 2.11 million

Lastly is Huntsman Corporation (NYSE:HUN), which has enjoyed an even more impressive run than NRG, with gains of nearly 300% since the beginning of 2016. All four of the chemical company’s divisions enjoyed a stronger first-quarter than the year before, lead by its polyurethanes segment, which delivered a 28% year-over-year revenue jump to $1.22 billion and an 81% adjusted EBITDA increase, to $261 million.

Huntsman Corporation (NYSE:HUN)’s balance sheet is strong, with net leverage sitting at just 1.3x, and the company has $1.25 billion in cash and credit facilities available should a tantalizing acquisition opportunity present itself, as it did earlier this year when Huntsman paid $350 million in cash to acquire Demilec, further strengthening its polyurethanes business.

Disclosure: None