By analyzing the historical 13F filings of Blue Ridge Capital, managed by John Griffin, we estimate that his mid-cap stock picks (those with market caps between $10 and $20 billion) returned -0.05% per month between 1999 and 2012. This is worse than the 0.32% monthly total return for the S&P 500 during the same time period. If we adjust for risk by utilizing Carhart’s four factor model, the results look even less impressive, with his mid-cap stocks generating negative 37 basis points of alpha on a monthly basis. More recently, between 2008 and 2012, Griffin’s mid-cap stock picks look particularly bad, generating monthly alpha of negative 260 basis points. In general, our research indicates that hedge funds, or any other investor, for that matter, can’t generate enough outperformance to justify their high fees when it comes to large-cap or mid-cap stocks. Our research also shows that hedge fund managers are generally good investors when it comes to small cap stocks. We believe investors can generate better returns if they avoid Buffett’s mid-cap picks and focus on his smaller-cap stocks. By using a similar approach Insider Monkey’s small-cap hedge fund strategy has returned 88% since the end of August 2012 and outperformed the market by nearly 50 percentage points (see the details here). Now, we will take a closer look at Griffin’s top five mid cap picks.
Charter Communications, Inc. (NASDAQ:CHTR) is Griffin’s largest mid-cap stock holding, with his 2.8 million shares valued at approximately $388 million. He increased his stake in the telecommunications company by 29% during the fourth quarter of 2013, which accounts for 4% of his total equity portfolio. Other hedge fund managers that own the stock include John Scully of SPO Advisory Corp., Philippe Laffont of Coatue Management and Barry Rosenstein of JANA Partners.
Second on the list is Dollar Tree Inc. (NASDAQ:DLTR), with Blue Ridge’s 4.2 million shares accounting for roughly $237 million. Dollar Tree is a $10.8 billion market cap company that operates discount variety stores in the U.S. and Canada and makes up about 2% of its equity holdings. Stephen Mandel’s Lone Pine Capital, Charles Akre’s Akre Capital Management and Ken Griffin’s Citadel Investment Group are also bullish on the stock, increasing their stakes during the fourth quarter.
Gap Inc. (NYSE:GPS) is Griffin’s third largest mid-cap stock position, with ownership of 5.9 million shares worth approximately $232 million. He reduced his stake in the $18.5 billion market cap apparel retailer moderately during the fourth quarter but retains a 1% stake. Other shareholders include Edward Lampert of ESL Investments, Daniel Khoshaba of KSA Capital Management and Edward Goodnow of Goodnow Investment Group.
Blue Ridge’s fourth largest mid-cap holding is Sandisk Corp. (NASDAQ:SNDK), in which it owns 2.5 million shares worth $178 million. This was a new purchase for the fund, with the data storage product maker accounting for roughly 2% of its equity portfolio. Other hedge funds that own the stock include Rob Citrone of Discovery Capital Management, Michael Lowenstein of Kensico Capital Management and David Cohen and Harold Levy of Iridian Asset Management.
Rounding out the list of his mid-cap stocks is Coach Inc. (NYSE:COH), in which Griffin owns 2.4 million shares worth about $136 million. This is another new position of the hedge fund manager, with the bag and accessories maker comprising approximately 1% of his equity holdings. Griffin joins other bullish investors in the stock, such as Stephen Mandel of Lone Pine Capital, John Rogers of Ariel Investments and David Shaw of D E Shaw.
Disclosure: none
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