Billionaire Paul Tudor Jones Trims His Fund’s Fee Structure Amid Underperformance, Bets On These Stocks Heading Into Q2

Amid a raging debate on the excessive fees charged by hedge funds despite their recent poor performance, Tudor Investment Corp, run by legendary billionaire investor Paul Tudor Jones, has become one the first large hedge funds to bite the bullet and reduce its fee structure. The Connecticut-based firm saw $1 billion in investor redemptions last quarter due to underperformance and most of the funds it manages, including its flagship BVI Global macro fund, are trading in the red for 2016. In a letter sent to clients on May 23, Tudor Investment Corp revealed that from July 1, it will be slashing fees for a share class that contains the largest chunk of the main fund’s money, to 2.25% of assets and 25% of profits from 2.75% of assets and 27% of profits. Tudor Investment recently submitted its 13F filing for the reporting period ending March 31. According to the filing, the fund’s U.S equity portfolio was worth $3.91 billion at the end of the quarter, compared to $3.65 billion at the end of 2015. In this article, we’ll discuss the fund’s top five stock picks heading into the second quarter as it aims for a turnaround.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

#5 TransUnion (NYSE:TRU)

 – Shares Owned by Tudor Investment Corp (as of March 31): 1.38 million

 – Value of Holding (as of March 31): $38.15 million

Let’s start with TransUnion (NYSE:TRU), in which Tudor Investment Corp reduced its stake by 8% during the first quarter. Tudor Investment has held a stake in TransUnion (NYSE:TRU) since the second quarter of 2015, when the company launched its IPO. After remaining range-bound for more than six months following said IPO, shares of the credit information provider have enjoyed a large rally in the past three months to push them up by over 40% from their IPO price and by 14.5% year-to-date. For its first quarter, the company managed to beat analysts’ estimates of EPS of $0.26 on revenue of $378.99 million, reporting EPS of $0.32 on revenue of $406 million. Following the earnings release, analysts at RBC Capital reiterated their ‘Outperform’ rating on the stock on April 26, while upping their price target on it to $30 from $29.

#4 Fidelity National Information Services (NYSE:FIS)

 – Shares Owned by Tudor Investment Corp (as of March 31): 646,200

 – Value of Holding (as of March 31): $40.91 million

Tudor Investment made a greater than 15-fold increase to its stake in Fidelity National Information Services (NYSE:FIS) during the first quarter. The fund should be patting itself on the back for making that decision, as shares of Fidelity National Information Services (NYSE:FIS) have appreciated by 14.5% so far in the second quarter. Most of the gains that the stock has seen this quarter came after the company reported its first quarter financial results. While the Street had projected Fidelity National to report EPS of $0.75 on revenue of $2.25 billion for the quarter, it reported EPS of $0.79 on revenue of $2.18 billion. Other hedge funds that boosted their stake in the company significantly during the first quarter included Will Cook‘s Sunriver Management, which increased its holding by 212% to 362,540 shares.

We’ll study the billionaire investor’s top three stock picks on the next page.

#3 Zimmer Biomet Holdings Inc (NYSE:ZBH)

 – Shares Owned by Tudor Investment Corp (as of March 31): 397,113

 – Value of Holding (as of March 31): $42.34 million

Moving on, Zimmer Biomet Holdings Inc (NYSE:ZBH) is turning out to be another major winner for Tudor Investment this quarter. After the fund increased its stake in the company by 215% during the first quarter, shares of Zimmer Biomet Holdings Inc (NYSE:ZBH) have responded by gaining over 12% in the second quarter. According to analysts, the stock could see further upside this year as the integration synergies from the Zimmer/Biomet merger will continue to improve the combined company’s financial performance. Some analysts also feel that the strong free cash flow that Zimmer Biomet Holdings is expected to generate in the coming quarters will allow it to raise its quarterly dividend, which currently stands at $0.24 per share. John C. Walker‘s Stonerise Capital Management initiated a stake in Zimmer Biomet Holdings during the first quarter, purchasing 100,000 shares of the company.

#2 C R Bard Inc (NYSE:BCR)

 – Shares Owned by Tudor Investment Corp (as of March 31): 225,900

 – Value of Holding (as of March 31): $45.78 million

C R Bard Inc (NYSE:BCR)’s stock has been on a sustained rise ever since Tudor Investment initiated a stake in the company during the fourth quarter of 2013, including gains of 15.76% so far this year. Though the company has a 40-year history of increasing its dividend, due to the continuous rise in its stock, its annual dividend yield stands at just 0.43%. The 22 leading analysts and research firms on Wall Street who track the stock currently have an average rating of ‘Overweight’ and an average price target of $221.60 on it, which is exactly the level at which the stock is currently trading at (which suggests that the collective rating may be considered outdated). Hedge funds that cut their holdings in C R Bard Inc (NYSE:BCR) during the first quarter included Arthur B Cohen and Joseph Healey’s Healthcor Management LP, which lowered its stake in the stock by 63% to 260,000 shares.

#1 Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT)

 – Shares Owned by Tudor Investment Corp (as of March 31): 550,000

 – Value of Holding (as of March 31): $45.88 million

Tudor Investment increased its stake in Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT) by 35% during the first quarter, which, when coupled with a 21% rise in the stock during the same period, propelled the company to the top spot in the fund’s equity portfolio as of March 31. Most of the gains that the stock has experienced this year came as a result of the company becoming the target of a battle between two acquirers; Marriott International Inc (NASDAQ:MAR) on the one hand, and a consortium of investors led by Chinese insurance behemoth Anbang Insurance Group on the other. Within a few days of Anbang Insurance Group withdawing its final $14 billion bid for the company on March 31, Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT) and Marriott International Inc (NASDAQ:MAR) jointly announced that the respective shareholders of both companies had approved their merger. Now that Starwood has completed the sale of its timeshare business to Interval Leisure Group, analysts expect that the Marriott/Starwood merger will be completed within a few weeks. Min Htoo and Jordan Teramo’s Anandar Capital Management was one of the hedge funds that initiated a stake in Starwood during the first quarter, purchasing 343,000 shares of the company.

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