Greenlight Capital, led by hedge fund manager David Einhorn is a long/short hedge fund that has returned 19.5% since its inception in 1996. The New York-based hedge fund held a public equity portfolio valued at $7.65 billion as of March 31, with 48% of that value coming from technology stocks, while the consumer discretionary and industrials sectors also enjoyed a high degree of representation. We recently ran a series of backtests on Einhorn’s public equity portfolio, breaking his performance down by the size of the invested companies and over various periods of time. What we found is that the top five mid-cap picks of Einhorn have been extremely successful of late, returning on average 1.45% monthly for the period of 2008 through 2012, which was well above the 0.29% average monthly returns for the S&P 500 during the same period. When we go back further however, extending the testing back to 1999, again through 2012, the average monthly returns take a big dip to 0.11%, with an average monthly alpha of -0.47%, under performing the market. With those returns and his recent success in mind, let’s check out Einhorn’s top holdings in mid-cap stocks, those being positions in Citizens Financial Group Inc (NYSE:CFG), Voya Financial Inc (NYSE:VOYA) and Lam Research Corporation (NASDAQ:LRCX).
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 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 142% 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 (while avoiding their high fees at the same time) rather than large-cap stocks.
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In Rhode Island-based Citizens Financial (NYSE:CFG), Greenlight increased its stake by 25% during the quarter to 12.61 million shares with a value of $304.33 million, the stake representing 3.97% of its public equity portfolio. Citizens Financial, one of the United States’ largest financial institutions with $136.5 billion in assets, has delivered a return of 10.7% year-to-date, and 19.4% over the past year. Citizens Financial posted earnings per share of $0.39 for the first quarter earlier this spring beating analysts’ expectations by $0.04. Citizens Financial (NYSE:CFG) is also a top mid-cap stock pick of Barry Rosenstein’s JANA Partners, whose top five mid-cap stock picks between 2003 and 2012 also crushed the market according to our backtests, making Citizens Financial a very intriguing stock pick. JANA Partners initiated a 150,000-share position in the company during the first quarter.
Another financial service company which stands as one of Einhorn’s top mid-cap stock picks is the New York-based Voya Financial (NYSE:VOYA). Einhorn increased his position in the Voya by 7% during the first quarter to 5.91 million shares with a value of $254.74 million, a 3.32% cut of the fund’s public equity portfolio. Voya Financial has been a good pick this year, returning 11.4% year-to-date and an impressive 29.8% over the past year. Furthermore, Voya Financial (NYSE:VOYA), which is a spin-off from Dutch ING Groep NV (NYSE:ING) and provides products in Retirements, Annuities, Investment Management, Individual and Employee Benefits, reached a new all-time-high on June 11, when the stock closed at $47.21. The earnings per share of $0.82 for the first quarter, posted on May 6, beat analysts’ expectations by $0.07 and were also $0.07 higher than the earnings for the same period the year before. Return-on-Equity also increased, indicating that Voya Financial is growing more adept at running its operations. In May it was also revealed that Voya Financial had been selected as the sole provider of the state of Nevada’s Public Employees compensation program. A stake in Voya Financial was opened by hedge fund manager Ron Bobman of Capital Returns Management during the first quarter, consisting of 279,000 shares valued at $12.03 million.
In semiconductor equipment manufacturer Lam Research (NASDAQ:LRCX), Greenlight Capital decreased its stake by 34% to 1.65 million shares with a value of $116.24 million. The Fremont, California-based Lam Research has experienced a bumpy spring on the NASDAQ, but is up 4% year-to-date. Something that made the markets happy was the 67% increase to the company’s dividend payments, which was announced in May. The quarterly dividend, of $0.30 per share, will be paid on July 1 and the share is trading ex-dividend since June 10, with the dividend yield standing at 1.47%. The results for the first quarter were better than analysts expected, with earnings per share of $1.40 and a 14% increase in its revenue compared to the same period the year before. Analysts are now assigning a target price of $94.36 on the stock, 14% upside above its closing level on June 11. A major shareholder in Lam Research (NASDAQ:LRCX) is Ken Griffin, whose Citadel Investment Group increased its stake by 66% during the quarter to 2.31 million shares with a value of $162.51 million.
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