Discovery Capital Management is a South Norwalk-based hedge fund started in 1999 by an alumni of the renowned hedge fund Tiger Management, billionaire Rob Citrone. The macro-economic hedge fund has delivered an average annualized return of nearly 17% since its foundation. The only year when the fund registered a loss was in 2008, as it lost almost 33% in the midst of the financial crisis of that year. Despite suffering a loss in 2008, Citrone is well-known for his knowledge of global and emerging markets and is often called a “walking encyclopedia”. Indeed, Discovery Capital Management’s splendid results throughout its existence can be attributed to the great mind of Citrone. The seasoned trader manages a public equity portfolio worth $8.78 billion as of March 31. In this article we’ll identify and analyze the top three new positions the team of investment experts at Discovery Capital initiated during the first quarter. Some of the new companies that appear in Citrone’s portfolio include: Wal-Mart Stores Inc. (NYSE:WMT), Brookdale Senior Living Inc. (NYSE:BKD) and McGraw Hill Financial Inc. (NYSE:MHFI), and these are the companies we’ll discuss below.
But first, a little about what we do. At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 144% and beating the market by more than 84 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise rather than large-cap stocks.
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Discovery Capital Management opened a new 3.55 million-share position in Wal-Mart Stores Inc. (NYSE:WMT), the value of the stake being $292.23 million as of March 31. Considering the fact that the stock has decreased by nearly 13% since the beginning of the current year, Wal-Mart’s shares might be viewed as relatively cheap at the moment, as the stock is seemingly trading near its bottom. Only a few days ago, Wal-Mart-owned Game supermarket opened its first store in Kenya. The middle class in Kenya has been growing at a steady pace and seems to be prepared for Western-style formal retail, which currently makes up just 30% of Kenya’s retail sector. Thus, the move into Kenya could be the first step to strong growth potential in that region for Wal-Mart. The largest shareholder in Wal-Mart Stores Inc. (NYSE:WMT) among the investors we track is Warren Buffett’s Berkshire Hathaway, which owns 60.39 million shares valued at nearly $5 billion.
Discovery Capital Management also purchased a new 3.49 million-share stake in Brookdale Senior Living Inc. (NYSE:BKD), which is valued at $131.78 million. Despite the relatively disappointing first quarter financial results for the company, Brookdale’s shares have risen by nearly 3% year-to-date. A reputable hedge fund manager, billionaire Larry Robbins, suggested that Brookdale can benefit from the aging population of the United States, claiming that “demographics are easier than macroeconomics, and the easiest thing to bet on is an aging population”. Hence, Brookdale, being the largest nursing home company in the U.S, will most likely have strong financial performance and growth in the upcoming years as a result of that aging baby boomer population. Additionally, Robbins also implied that Brookdale’s shares are relatively cheap at the moment, with Brookdale’s business being valued at just 9$ per share at the moment, since the company’s real estate is worth around $28 per share. Unsurprisingly, Larry Robbins’ Glenview Capital is the largest shareholder in Brookdale Senior Living Inc. (NYSE:BKD) within our database, holding a stake of 11.59 million shares.
Finally, its most recent 13F filing displayed that Discovery Capital Management has also opened a new long position in McGraw Hill Financial Inc. (NYSE:MHFI). Citrone’s hedge fund purchased a stake of 1.10 million shares, worth $113.95 million at the end of the first quarter. The stock has increased by 13% in 2015 and it is not likely to stop rising as there are no foreseeable troubles for the company down the road. McGraw Hill Financial beat analysts’ expectations by delivering earnings per share of $1.10 during the first quarter. Moreover, the company enjoyed strong performance across all of its segments, allowing the company to increase its revenues by 6% and EBIT by 19% year-over-year. Other financial measures that indicate the strong financial health the company appears to be in includes its improved operating margins (EBITDA). Jonathon Jacobson’s Highfields Capital Management represents one of the largest investors in McGraw Hill Financial Inc. (NYSE:MHFI), owning roughly 7.53 million shares.
Disclosure: None
