Amid Severe Decline In AUM, Billionaire Leon Cooperman’s Omega Advisors Shuffles Portfolio Heading Into 2017

Unlike some of the other 140 Biggest and Most Famous Activist Hedge Funds, which have seen their assets under management dwindle due to poor performance, billionaire Leon Cooperman‘s Omega Advisors returned 8% in 2016, yet the fund’s AUM was cut nearly in half last year, to $3.4 billion from $6.7 billion. Since the start of 2015, Omega’s AUM is down by over 60%, with a large part of that decline coming in the final quarter of 2016, when the SEC filed a lawsuit against the fund alleging insider trading in securities of Atlas Pipeline Partners.

The effect of this severe fall in AUM can be seen in the fund’s 13F portfolio as well. According to Omega’s latest 13F filing, its portfolio contained holdings worth $2.27 billion at the end of December, 30% less than the $3.24 billion in holdings it contained at the end of September. The filing also revealed that during the fourth quarter the fund reduced its holding in 41 stocks and sold out of its stake in 21 stocks, while making additional purchases in only nine stocks and initiating a stake in just 17 stocks. Moreover, Omega’s 13F portfolio was considerably top-heavy, with its top-10 equity holdings amassing 42.53% of the value of its portfolio. Having discussed the broad changes in the fund’s portfolio during the fourth quarter, let’s proceed to take a look at five major moves made by Omega Advisors as it prepared to head into 2017.

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Motorola Solutions Inc (NYSE:MSI)

Let’s begin with Motorola Solutions Inc (NYSE:MSI), in which Omega Advisors liquidated its entire stake during the fourth quarter, which had comprised 1.03 million shares at the end of September. A part of Omega Advisors’ portfolio since the first quarter of 2012, Motorola Solutions Inc (NYSE:MSI)’s stock has risen by almost 70% in the last five years. During that same period, the company hiked its quarterly dividend every year, with its payout currently sporting an annual yield of 2.34%. Earlier this month, the company’s stock took a beating after short seller Citron Research published a report in which it argued that the company’s gross margins on handsets in the U.S were significantly higher than they were in Europe (83.5% vs. 9%) largely because of selling overpriced handsets into single-sourced government contracts. On the same day that Citron Research published its report, analysts at Gabelli upgraded the stock to ‘Buy’ from ‘Hold’ while keeping their price target on it unchanged at $96, suggesting 20% upside. The number of hedge funds tracked by Insider Monkey that were long MSI declined by three to 28 during the fourth quarter, while the aggregate value of their holdings in the company fell by $49 million to $1.12 billion.

On the next page we’ll see how Omega Advisors was trading two prominent stocks in Q4 amid its declining AUM.

Navient Corp (NASDAQ:NAVI)

– Shares Held by Omega Advisors (as of December 31): 3.75 Million

– Value of Holding (as of December 31): $61.68 Million

Omega Advisors brought its holding in Navient Corp (NASDAQ:NAVI) down by two-thirds during the fourth quarter. Immediately after the fund initiated its stake in the loan management and recovery company in the fourth quarter of 2014, Navient Corp (NASDAQ:NAVI)’s stock entered a bear phase and lost over 40% of its value in 2015. However, the stock made a recovery in 2016, rising by over 60%, and offered a chance for trapped bulls to get out of their positions. For its most recent quarter, Navient Corp declared EPS of $0.43 on net interest income of $378 million versus analysts’ EPS and net interest income expectations of $0.44 and $365 million, respectively. The company’s popularity among the investors in our database dropped marginally during the fourth quarter, as the number of funds long the stock inched down by one to 29 and the aggregate value of their holdings fell by $77.6 million to $289.22 million.

Time Inc (NYSE:TIME)

– Shares Held by Omega Advisors (as of December 31): 3.89 Million

– Value of Holding (as of December 31): $69.5 Million

Time Inc (NYSE:TIME) was among the few stocks in which Omega Advisors increased its stake substantially during the fourth quarter, upping it by 330%. Several other hedge funds that we follow also upped their stake in the company during the period, amid news that Time Inc (NYSE:TIME)’s Board had declined an offer from Edgar Bronfman to buy the company for $18 per share. However, the number of investors in our system that were long TIME remained the same at 21 by the end of the fourth quarter, despite the aggregate value of their holdings in it shooting up by 74.4% to $256.5 million. On February 7, the Wall Street Journal reported that a group led by Edgar Bronfman Jr. along with Meredith Corp. (NYSE:MDP) has signed a non disclosure agreement with Time, suggesting that the entities are in advanced stages of merger-related talks. Last month, Time agreed to acquire automated ad-buying platform Adelphic for an undisclosed sum of money.

On the final page, we’ll look at the two other major moves executed by Omega Advisors in Q4.

First Data Corp (NYSE:FDC)

– Shares Held by Omega Advisors (as of December 31): 8.57 Million

– Value of Holding (as of December 31): $121.66 Million

From being the top stock pick of Omega Advisors at the end of September, First Data Corp (NYSE:FDC) dropped a spot by the end of 2016 owing to the fund cutting its stake in the company by one-third during the fourth quarter. Hedge funds collectively became less bullish on the company during that time, as its ownership among those in our database fell by eight to 30 and the aggregate value of their holdings in it declined by almost $16 million to $645.38 million. The electronic commerce company has seen its stock move up slowly but steadily since the second-half of 2016. Although the stock is only trading close to its IPO price of $16 per share, it has registered a gain of nearly 15% so far in 2017. On February 13, First Data Corp (NYSE:FDC) reported its fourth quarter financial results. While analysts were expecting it to report EPS of $0.36 on revenue of $1.85 billion, the company declared EPS of $0.86 on revenue of $1.83 billion.

United Continental Holdings Inc (NYSE:UAL)

– Shares Held by Omega Advisors (as of December 31): 1.76 Million

– Value of Holding (as of December 31): $128.26 Million

Even though Omega Advisors reduced its stake in United Continental Holdings Inc (NYSE:UAL) by 14%, the company managed to jump a spot to become the fund’s top equity pick going into 2017. United Continental Holdings Inc (NYSE:UAL) has reported better-than-expected earnings for the past four quarters and has bought back a large number of outstanding shares during that period, which has helped its stock move up significantly. However, some of the 80%-plus gains that the stock has enjoyed since June 2016 can also be attributed to the overall rally in equities following President Trump’s electoral victory, as well as influential investors like Warren Buffett‘s Berkshire Hathaway disclosing a stake in the airline. Despite such a strong rally in a short period of time, most analysts continue to remain bullish on the stock. Currently, the 18 leading analysts and research firms on the Street who track the stock have an average rating of ‘Overweight’ and an average price target of $84.88 on it, suggesting further upside of 13%. The bullishness of analysts notwithstanding, hedge funds as a whole were less optimistic about the stock heading into 2017. During the fourth quarter, the number of investors that we cover which disclosed being long UAL declined by nine to 54, though the aggregate value of their holdings in the company increased by 58.7% to $5.93 billion.

Disclosure: None