Billionaire James Dinan is one of the best-performing hedge fund managers for the last couple of years. His fund, York Capital Management, managed to recover excellently after tanking in 2011 with a return of more than 13% a year later. Earlier Dinan also had a rough patch after losing all his savings in 1987 but he came back later and founded York in 1991 with $3.6 million. The investor focuses on liquidity and prefers to diversify significantly his portfolio in order to avoid big losses from a single position. Moreover, Dinan’s approach involves picking investments with smaller losses rather than larger upside potential. York Capital’s 13F filing for the end of the first quarter showed an equity portfolio valued at $14.56 billion, a significant increase from $11.11 billion a quarter earlier. Dinan’s diversification approach can be observed from the large number of holdings, which amounts to more than 100, while the first two positions are represented by ‘Put’ options underlying shares of iShares Dow Jones US Real Estate ETF and iShares Russell 2000 Index ETF. However, in this article we will focus on Dinan’s positions in US-listed companies.
At Insider Monkey we analyze 13F filings of more than 730 investors in order to identify the most profitable investment opportunities that could benefit piggybackers. Through a series of backtests, which involved 13F filings during 1999 and 2012, we determined that imitating a portfolio of 50 most popular stocks among hedge funds underperformed the market by 7.0 basis points per month and delivered a monthly alpha of 6.0 basis points. One of the main reasons for this underperformance is the fact that most popular stocks among these funds are mostly large- and mega-cap stocks, which are more efficiently priced. On the other hand, following 15 most popular small-cap ideas of hedge funds delivered a return of nearly 1.0 percentage points in excess of the S&P 500 Total Return Index gains. Since we started to share the most popular small-cap stocks among the funds we track in August 2012, our system delivered a return of more than 131%, beating the S&P 500 ETF (SPY) by more than 80 percentage points (read more details about how to benefit from piggyback investing).
One of Dinan’s top holdings from York’s latest 13F filing is represented by ‘Call’ options underlying shares of PepsiCo, Inc. (NYSE:PEP). The position is equal to 8.74 million shares of PepsiCo with a value of $835.82 million. One of the main reasons why Dinan might be making a bullish call on PepsiCo, Inc. (NYSE:PEP) is the involvement of activist Nelson Peltz of Trian Partners, who has been trying to split the company and spin-off its snacks segment. Moreover, PepsiCo has recently raised its dividend by 7.6% to $0.70, which gives the stock a yield of 2.90%. However, Dinan does not bet only on PepsiCo among beverage companies. York’s latest 13F also revealed a position that contains ‘Call’ options equal to 7.44 million shares of The Coca-Cola Co (NYSE:KO), the value of the position amounting to $301.65 million. Among the funds we track, the aforementioned Trian Partners holds 18.32 million shares of PepsiCo, trailing Donald Yacktman’s Yacktman Capital Management with 25.49 million shares. Overall, among all the funds from our database, Coca-Cola ranked slightly higher with 65 investors holding in aggregate $21.71 billion worth of stock, versus PepsiCo, Inc. (NYSE:PEP), which had 61 funds with long positions totalling $8.02 billion. However, the number of investors holding shares of both companies increased during the first quarter.
On the other hand, Dinan cut his stake in American Airlines Group Inc (NASDAQ:AAL) by 6% to 11.41 million shares valued at $602.25 million as of the end of March. The move comes as the stock of American Airlines Group inched down by 1.40% during the January-March period, although year-to-date it is already down by more than 20%. Airline companies have enjoyed strong profits in the last several months, benefiting from lower fuel prices. American Airlines Group Inc (NASDAQ:AAL) profit for the first quarter more than doubled to $1.30 per diluted share from $0.66 a year earlier. However, oil gained ground since the beginning of the year, and recent reports that airlines are positioned to grow competition with lower fare prices and more destinations. American Airlines Group Inc (NASDAQ:AAL)’s stock has seen a number of downgrades this year, with Deutsche Bank, Zacks and Cowen & Company cutting their ratings to ‘Hold’, ‘Neutral’ and ‘Market Perform’ respectively. Another shareholder of American Airlines is James Dondero’s Highland Capital Management, which owns 5.98 million shares as of the end of March.
Mr. Dinan also initiated a stake in Kraft Foods Group Inc (NASDAQ:KRFT), which contains nearly 6.0 million shares worth $522.28 million. In addition, York also owns ‘Call’ options equal to 1.08 million shares of Kraft with a value of $94.15 million. The move comes amid the announcement that Kraft will be acquired by H.J. Heinz. After the merger of both companies, Kraft shareholders will receive 49% of the stock in the new company and a cash dividend of $16.50 per share. The announcement sent Kraft Foods Group Inc (NASDAQ:KRFT)’s stock higher and attracted a large number of investors. As our data show, the number of funds with long positions in the company jumped to 70 from 36 during the first three months, while the aggregate value of capital held by the funds from our database surged to $3.28 billion from only $743.82 million a quarter earlier. In fact, most of the largest shareholders of Kraft Foods Group Inc (NASDAQ:KRFT) among the funds we track, disclosed new positions in the latest round of 13F filings. Peter Adam Hochfelder’s Brahman Capital, David Greenspan’s Slate Path Capital and John Smith Clark’s Southpoint Capital Advisors are the next three shareholders after York, holding 3.09 million shares, 2.45 million shares and 1.90 million shares respectively.
Next in line is Actavis plc (NYSE:ACT) with York disclosing a $454.53 million stake that contains 1.53 million shares. During the first quarter, the stock of the pharmaceutical company jumped by more than 15%, while Dinan raised his stake by 12%. Actavis ranked as the most popular stock among the funds we track with 157 investors holding in aggregate $21.97 billion worth of stock. The increase of Actavis plc (NYSE:ACT)’s popularity among investors comes as the company completed the acquisition of Allergan and set on a path of strengthening its position as one of the leaders in the pharmaceutical industry with a portfolio that contains thousands of original and generic drugs. Analysts also see more potential in the stock with a number of outfits raised their price targets on the stock, the consensus standing currently at above $343 per share. Aside from York Capital, Andreas Halvorsen‘s Viking Global and Chuck Royce’s Royce & Associates disclosed holding 6.11 million shares and 5.64 million shares of Actavis plc (NYSE:ACT), respectively, raising their stakes by 34% and 260% during the first quarter.
Finally, there is NXP Semiconductors NV (NASDAQ:NXPI), in which York owns 4.31 million shares valued at $432.53 million. The stock of the $25 billion Dutch semiconductor company has gained more than 38% since the beginning of 2015. One of the primary reasons for this growth is the company’s chip that work with near field communications, a primary technology used in mobile payments. With iPhone demand growing better that anticipated, investors are also piling into NXP Semiconductors NV (NASDAQ:NXPI), expecting stronger financial results. York is also one of the top shareholders of NXP Semiconductors NV (NASDAQ:NXPI) among the funds we track, trailing Viking Global with 4.40 million shares and preceding Donald Chiboucis‘ Columbus Circle Investors, which owns 2.44 million shares.
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