Billionaire Alan Howard’s Brevan Howard Fund Sold All but Two Stocks in Q2

Brevan Howard, considered one of the largest macro hedge funds in the world till sometime ago, has been witnessing a steady decline in its assets since the past few quarters. According to the Wall Street Journal, investors withdrew more than $3 billion from Brevan Howard’s master fund during the first half of 2016 and the fund’s assets under management (AUM) are down by more than 50% in the last two years to $19.4 billion from almost $42 billion. The fund was founded in 2002 by billionaire Alan Howard along with four other fixed-income traders from Credit Suisse and built a name for itself by performing extremely well during the financial crisis and the years that followed. However, its recent performance paints a dismal picture.

According to Brevan Howard’s latest 13F filing, it became extremely bearish on US and emerging market equities during the second quarter, selling its entire holdings in Argentinean stocks, which once constituted a major chunk of its portfolio. At the end of June, the fund had massive derivative positions in Put options of S&P 500 and iShares MSCI Emerging Markets Indx (ETF), which accounted for over 95% of the value of its equity portfolio, and was long in only two US stocks, both from the financial sector. Considering that both the S&P 500 and the iShares MSCI Emerging Markets Indx (ETF) are trading in the green for the third quarter currently and the Argentinean stock index, MERVAL BUENOS AIRES, has appreciated by 7.8% since the end of June, it’s quite possible that Brevan Howard’s performance would have taken a further beating in the third quarter. In this post, we will take a look at three major holdings of the fund which it liquidated during the second quarter, and the only two stocks that it held in its portfolio going into the third quarter.

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Cresud S.A.C.I.F. y A. (ADR) (NASDAQ:CRESY)

Brevan Howard had initiated its stake in Cresud S.A.C.I.F. y A. during the first quarter of 2015. Although the stock of Cresud S.A.C.I.F. y A. saw only a marginal gain in the period between April 2015 and June 206, it has registered solid gains in the current quarter and is currently trading up 30.43% year-to-date. The company acquired Israeli company IDB Development Corporation Ltd. in October last year and this investment was consolidated in the balance sheet in the last quarter. However, since IDBD’s fiscal year-ends on December 31 of each year and Cresud S.A.C.I.F. y A. (ADR) (NASDAQ:CRESY) fiscal year-ends on June 30, Cresud S.A.C.I.F. y A. couldn’t report IDB Development Corporation Ltd. financial numbers during its yearly results, which it announced on September 9. For the fiscal 2016, the company reported a loss of $0.19 per share, compared to a loss of $0.2 it had reported for its previous fiscal year. During the second quarter, the ownership of Cresud S.A.C.I.F. y A. among funds covered by us inched up by one to 11, but the aggregate value of their holdings in it fell by $28.8 million to $73.27 million.

Adecoagro SA (NYSE:AGRO)

Adecoagro SA’s stock saw a stellar rally from the end of third quarter of 2015, when Brevan Howard initiated a stake in the company, till March 2016. However, it has given up a large amount of those gains since then and currently trades down 11.59% year-to-date. On May 14, analysts at Credit Suisse Group AG reiterated their ‘Buy’ rating on the stock. Last month the company reported its second quarter numbers, declaring a per share loss of $0.15 on revenue of $115.69 million versus analysts’ estimate of EPS of $0.06 on revenue of $182.1 million. The ownership of Adecoagro SA among funds covered by us declined by five to 24 during the second quarter and the aggregate value of their holdings in it fell by $57.4 million to $398.8 million.

On the next page, we are going to discuss another stock in which Brevan Howard liquidated its stake, as well as two companies that represented its long positions heading into the third quarter.

YPF SA (ADR) (NYSE:YPF)

YPF SA was one of Brevan Howard’s major holdings at the end of the first quarter, accounting for 6.33% of the fund’s equity portfolio on March 31. Shares of the energy company have declined by around 10% in the current quarter. However, owing to the gains it had registered earlier in the year, the stock is still trading up by 9% year-to-date. YPF SA currently pays an annual dividend of $0.15 per share, which based on its last trading price translates into an annual dividend yield of 1.71%. Following the departure of its former CEO Miguel Galuccio in April, the Argentinean state-controlled oil company named Ricardo Darre, who served as a managing director at Total (NYSE:TOT), as its new CEO in June. YPF SA’s stock currently trades at a price-to-book multiple of only 0.7, which is significantly below the average price-to-book multiple of 1.1 at which its oil sector peers are trading. At the end of June, there were 26 hedge funds covered by us that had long positions in YPF SA with the aggregate value of their holdings in it amounting to $514.13 million.

#2. Ocwen Financial Corp (NYSE:OCN)

– Shares Owned by Brevan Howard (as of June 30): 21.86 Million

– Value of The Holding (as of June  30): $251.43 Million

Brevan Howard didn’t make any changes to its stake in Ocwen Financial Corp during the second quarter. However, during the same period Michael Kao‘s Akanthos Capital boosted its stake in the company by 86% to 1.3 million shares. Ocwen Financial Corp has lost more than 90% of its market capitalization since the beginning of 2014. This year alone the stock  of the mortgage company has lost almost 50% of its value, with most of those losses coming in after Ocwen Financial Corp reported its fiscal 2015 fourth quarter results in late-February. For its most recent quarter, analysts had expected the company to report a per share loss $0.43, however, Ocwen Financial Corp again disappointed them by reporting a per share loss of $0.71. Nevertheless, the revenue of $373.05 million was higher than the $324.05 million that analysts had estimated. On September 14, analysts at Compass Point upgraded the stock to ‘Buy’ from ‘Neutral’ while keeping their price target on it unchanged at $4.50. The number of funds covered by Insider Monkey that had long positions in  Ocwen Financial Corp came down by three to 16 during the second quarter and the aggregate value of their holdings in it also slumped by 43.75% to $36.10 million.

#1. CME Group Inc (NASDAQ:CME)

– Shares Owned by Brevan Howard (as of June 30): 21.86 Million

– Value of The Holding (as of June  30): $251.43 Million

Though Brevan Howard kept its stake in CME Group Inc (NASDAQ:CME) unchanged during the second quarter, other hedge funds covered by us collectively became more bullish on the company during that period. The ownership of the company among them during the second quarter rose by four to 49  and the aggregate value of their holdings in it jumped by $264 million to $1.24 billion. CME Group’s stock has appreciated by almost 20% so far in 2016 and is currently trading around its 52-week high. Despite this rally, the stock still sports a respectable annual dividend yield of 1.20% currently. Most analysts who track the stock are currently bullish on it, including analysts at JPMorgan Chase & Co., who, on September 12, set a price target of $116 on it while reiterating their ‘Buy’ rating. For its fiscal 2016 third quarter, analysts are expecting the company to report EPS of $1.06 on revenue of $853.25 million. For same quarter of last year, CME Group Inc (NASDAQ:CME) had reported EPS of $1.02 on revenue of $850.30 million.

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