In a recent quarterly report to his investors, Larry Robbins of Glenview Capital delineated the performance of Glenview Opportunity Funds through the fiscal year 2014, and highlighted investments that he is most confident about in this fiscal year. We picked out three such equity positions including, which are McDonald’s Corporation (NYSE:MCD), T-Mobile US Inc (NYSE:TMUS) and Flextronics International Ltd. (NASDAQ:FLEX), to discuss why Robbins sees these companies trending higher in 2015.
Hedge funds like Glenview Capital expend a considerable amount of resources in researching the companies that they choose to invest in. An everyday investor does not have the time or the required skill set to do so. It is also not a good idea to pay the egregiously high hedge fund fees that could range between 30% and 80% of the returns that these investment firms generate. Thus a retail investor might be tempted to follow the most popular stock picks among hedge funds themselves. Our research has shown that a portfolio based on these stock picks which is invariably comprised of large-cap companies, falls considerably short of a portfolio based on our small-cap strategy in terms of annual returns. The most popular large-cap stocks among hedge funds underperformed the market by 7 basis points per month in our back tests, whereas the 15 most popular small-cap stock picks among hedge funds outperformed the market by nearly a percentage point per month. We have also been forward-testing the performance of top small-cap stocks since August 2012, and they have managed to beat the market by 79.4 percentage points during that 2.5 year period (read the details here).
Larry Robbins was a trader at Leon Cooperman’s Omega Advisors before he set up his own shop in February, 2001. After being hit hard in 2008 when the fund lost nearly half of its assets, Robbins staged a strong comeback and the fund gained some 82.7% in 2009. While Glenview Capital Opportunity Fund grossed 31.57% returns for 2014, Glenview Offshore Opportunity Fund also grossed a strong 31%. The market value of Glenview’s equity portfolio stood at $19.98 billion towards the end of 2014. Holdings in the Healthcare and Consumer Discretionary sectors contributed 35% and 25% to the portfolio’s value respectively.
Flextronics International Ltd. (NASDAQ:FLEX) was Glenview’s third largest holding, as it held some 75.13 million shares valued at $839.96 million. Robbins emphasized on how the promotion of Chris Collier to Chief Financial Officer in May, 2013 has led to continued attainment of the company’s earnings commitments. Moreover, cyclical uplift from the telecom sector is also expected to result in more revenues from Flextronic’s Integrated Network Solutions segment in the second half of 2015. The company’s share repurchase program also remains strong and the current valuation is cheap as the stock trades at 10 times 2015 EPS.
Among the hedge funds that we track, 33 had an aggregate investment of $1.45 billion in the company at the end of the fourth quarter compared to 31 funds with $1.17 billion on quarter previous. Cliff Asness of Aqr Capital Management initiated a stake in the company during the fourth quarter by acquiring some 12.89 million shares valued at $144.16 million. Flextronics International Ltd. (NASDAQ:FLEX) is up by about 33% over the last 52 weeks.
