Brian Newman and David Heller’s Cloud Gate Capital, one of the newest additions to our database of more than 700 top hedge funds, was a big winner on Tuesday as a shareholder of CBRE Group Inc (NYSE:CBG), in which the fund holds 213,100 shares. Shares of the commercial real estate company were up over 6% yesterday, after it announced that it had acquired the Global Workplace Solutions business of Johnson Controls Inc (NYSE:JCI) for $1.48 billion in cash. We’ll check out that deal as well as take our first look at the top picks of Cloud Gate Capital.
The purchase by CBRE Group Inc (NYSE:CBG) has done nothing to dampen the enthusiasm in the company by investors and analysts, the latter having a consensus “Buy” rating on the stock. It adds 1.2 billion square feet of real estate space throughout 55 countries to the company’s portfolio, boosting it to nearly 5 billion square feet in total. In addition, CBRE Group Inc (NYSE:CBG) and Johnson Controls Inc (NYSE:JCI) announced a 10-year strategic partnership that among other things, will allow CBRE to purchase air conditioning equipment for its facilities directly from the factory of Johnson Controls.
However, the investor that has the highest payoff from CBRE’s stock jump is Richard Blum’s Blum Capital Partners, which is heavily invested in the stock, with 69.39% of its portfolio tied up in a 11.71 million share position in CBRE Group.
Cloud Gate Capital was added to our database this quarter, as the company filed a 13F for the first time last month, disclosing its equity portfolio at the end of 2014. Generally, institutional investors are required to file a 13F filing if the value of their equity portfolio exceeds $100 million. The fund’s equity portfolio stands at $100.02 million as of the end of last year and it is relatively diversified among 23 positions.
Even though some hedge funds manage to score big sometimes, the average return of equity hedge funds amounted to 1.4% in 2014, which is embarrassingly low compared to the S&P 500 ETF (SPY) gain of 13.5%. Our small-cap strategy of the top 15 small-cap stock picks of a select group of funds on the other hand returned 28.2% last year, and 53.2% in 2013. Moreover, since it was launched in August, 2012, our strategy has returned 132% through March 11, which 2.5 times higher than the 52.6% gain of the S&P 500 ETF (SPY) over the same period (see more details), proving unequivocally that there is immense value to be found in certain activity of hedge funds, even as they collectively underperform the market.
With this in mind, let’s move on to the top picks of Cloud Gate Capital from its first 13F filing. On the first spot is Brookdale Senior Living, Inc. (NYSE:BKD), in which the fund owns 262,600 shares valued at $9.63 million. This gives the fund one of the highest exposures to the stock, at 9.62% of its portfolio, with only Gunnar Overstrom’s Three Corner Global Investors having a greater exposure at 12.66%. Doug Silverman and Alexander Klabin’s Senator Investment Group is the largest shareholder among the funds we track with ownership of 9.15 million shares. Brookdale Senior Living, Inc. (NYSE:BKD) is up over 100% over the last three years, and more than 17% over the past calendar year. Despite that performance, activist investor Tom Sandell of Sandell Asset Management, has pushed for changes at the company, including a shakeup of Brookdale Senior Living, Inc. (NYSE:BKD)’s board and the nomination of himself and two other directors to it.
CVS Health Corp (NYSE:CVS) is Cloud Gate’s second top choice with 93,900 shares valued at $9.05 million. The position constitutes 9.04% of Cloud Gate’s equity portfolio, much higher than any other position in the company among the funds in our database. First Pacific Advisors LLC, managed by Robert Rodriguez and Steven Romick owns the largest position in CVS Health Corp (NYSE:CVS) at 6.89 million shares. CVS Health Corp (NYSE:CVS) is another stock has performed very well over the past three years, gaining over 130%, and nearly 30% in the last six months alone. With shares now trading at a P/E ratio of 26, the valuation on CVS may be getting stretched a little too thin to make it an attractive play. Still, the Affordable Care Act has undoubtedly been a boon for business, as has/will the aging boomer population.
Its position in BioScrip Inc (NASDAQ:BIOS) is Cloud Gate’s third most valuable, with its 1.06 million shares worth $7.41 million. The provider of healthcare home services has not fared nearly as well as CVS in the healthcare sector, with its adjusted fourth-quarter losses ballooning to $0.72 per share from $0.06 per share during the fourth quarter of 2013. BioScrip Inc (NASDAQ:BIOS)’s shares are down over 35% in 2015, and the company has become an activist target of Coliseum Capital’s. Still, BioScrip Inc (NASDAQ:BIOS) did show strong double digit growth in its Infusion Services segment, which is one of the key long term areas of growth the company is targeting.
Disclosure: None
