Howard Marks‘ Oaktree Capital Management has filed its 13F with the SEC for the reporting period of March 31. Howard Marks co-founded Oaktree Capital Management in 1995 together with some of his colleagues from TCW Group, an investment management firm he worked at for a decade before starting Oaktree. He also worked at Citibank prior to joining TCW Group. Marks is known for the detailed memos he writes to his clients, dubbed “memos to Oaktree clients”, as well as the exemplary investment book he wrote titled “The Most Important Thing: Uncommon Sense for the Thoughtful Investor”, which was praised by the likes of Warren Buffett. His book discusses investment strategies and analyzes the subtleties of both opportunity and risk in investments.
The prominent fund manager currently has an equity portfolio of $9.48 billion, which would leave many to assume that he invests most of that money in large- or mega-cap stocks. However Marks has stuck closely to the core tenets of value investing even as his portfolio has swelled in value over the years. This is wise, as our own research at Insider Monkey shows that large-cap companies are more efficiently priced by the market than small-cap companies, offering less opportunities for value investors to find hidden gems. If we look at the top holdings of Marks, we see investments primarily in smaller companies. His top three stock holdings consist of Store Capital Corp (NYSE:STOR) with a market cap of $2.53 billion, Tribune Media Co (NYSE:TRCO) with a market cap of $5.34 billion, and Dynegy Inc. (NYSE:DYN) with a market cap of $4.15 billion.
Marks’ top picks are notable to us given the fact that two of the three are in small-cap stocks. It’s investors like him who add great value to our small-cap strategy, as they are heavily invested in the success of their small-cap picks and have poured considerable resources into identifying undervalued or under-the-radar companies to invest in. As mentioned, we have found that collectively, hedge funds’ top small-cap picks provide a great investment opportunity, with our strategy having returned over 141% since it was launched at the end of August, 2012 (see the details), outperforming the market by more than 235%.
All of this leads us into a few of Marks’ more surprising investments, which we’ll look at in this article. They are long positions in Chinese brands Alibaba Group Holding Ltd (NYSE:BABA) and Baidu Inc (ADR) (NASDAQ:BIDU), which may indicate bullish sentiment in the Chinese market from Marks, as well as convertible notes of Tesla Motors Inc (NASDAQ:TSLA). Each of these companies has a hefty market capitalization, with Alibaba tipping the scales at $221.45 billion, Baidu at $66.94 billion, and Tesla at $31.15 billion.
Marks’ latest filing disclosed ownership of 345,000 shares of Alibaba Group Holding Ltd (NYSE:BABA) with a market value of $28.72 million, a new position for him. The Chinese e-commerce giant’s new CEO Daniel Zhang made clear that the company would keep globalizing its operations and services in the upcoming years. Alibaba has collaborated with Wal-Mart Stores, Inc. (NYSE:WMT) to promote its mobile wallet, Alipay, with Wal-Mart announcing that its customers in China would be able to make purchases at Wal-Mart’s stores with Alipay Wallet. In addition, the Chinese online retailer has plans to expand its AliExpress platform that allows users to offer Chinese goods internationally. Alibaba Group Holding Ltd (NYSE:BABA) is also planning to invest in India’s second-largest e-commerce platform, Snapdeal. This is the second time that Alibaba is looking to crack a deal with the Indian e-commerce company. Dan Loeb‘s Third Point, along with Discovery Capital Management and Tiger Global Management hold positions in Alibaba Group Holding Ltd (NYSE:BABA).
Marks did already own a position in Chinese search engine company Baidu Inc (ADR) (NASDAQ:BIDU) and reduced it slightly during the first quarter to 127,837 shares with a market value of $26.64 million. The technology company reported its first quarter 2015 financial results on April 29, which were beneath market expectations, with Baidu reporting a 34% year-over-year increase in its quarterly revenue to $2.05 billion against market expectations of 36% growth. Its net quarterly income was actually lower than the year-over-year quarter at $395.1 million, though this actually beat estimates. Baidu Inc (ADR) (NASDAQ:BIDU) has beaten market expectations in six out of the last eight quarters. However, these results were not good enough for investors this time, as shares have declined 12.57% since the earnings results and 16.76% year-to-date. Lone Pine Capital, Coatue Management, and Andreas Halvorsen‘s Viking Global are among the primary investors of Baidu.
Oaktree Capital Management owns convertible bonds of Tesla Motors Inc (NASDAQ:TSLA), holding 9.37 million convertible bonds with a market value of $7.91 million. The electric automaker is known for its high-end automobiles including the award-winning Model S, which sells in the range of $75,000 to $85,000. The shares of Tesla Motors are up 11.29% year-to-date. Tesla has been under pressure for the last couple of quarters primarily because of its sales performance. In its first quarter 2015 results, the electric car manufacturer reported quarterly revenue of $939.88 million, which was 52% higher than the corresponding period in 2014. However, Tesla incurred losses of $154.18 million, which is three times more than its losses from the year-ago quarter. At the same time, industry experts are worried that Tesla’s expenditures on new businesses could affect its bottom line and earnings in the upcoming quarters. Daniel Benton‘s Andor Capital Management has been one of the most bullish investors in Tesla Motors Inc (NASDAQ:TSLA) for the past year and owned a 1.25 million share position as of the end of 2014.
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