Emerging Sovereign Group Shuffles Top Positions In Bid To Recover Losses

Emerging Sovereign Group was founded in 2002 by Kevin Kenny, Mete Tuncel and Jason Kirschner, who previously worked together at Morgan Stanley, with seed money from Tiger Management founder, Julian Robertson. Since then, the fund has grown to manage approximately $3.5 billion worth of assets, with $1.45 billion invested in public equity. At the end of the second quarter, consumer staples stocks accounted for 42% of Emerging Sovereign Group’s equity portfolio, while investments in the technology sector amounted to 25% of the portfolio.

The Carlyle Group, which took over the fund in 2011, has decided to unwind its holding as it aims to focus more on credit-oriented investments. The partners of Emerging Sovereign Group LLC have agreed to buy back a majority package. Emerging Sovereign Group focuses on investment opportunities in emerging markets and also employs macroeconomic strategies. According to a report by Bloomberg, the firm has two main strategies that account for 90% of its investments: the Cross Border Equity Strategy, which is down roughly 7% so far this year, and the Domestic Opportunity Strategy.

Hedge fund sentiment is an important metric for assessing long-term profitability. At Insider Monkey, we track over 745 hedge funds, whose quarterly 13F filings we analyze to determine their collective sentiment towards several thousand stocks. However, our research has shown that the best strategy is to follow hedge funds into their small-cap picks. This approach can allow monthly returns of nearly 95 basis points above the market, as we determined through extensive backtests covering the period between 1999 and 2012 (read more details here).

Constellation Brands Still A Buy

Opening Emerging Sovereign Group’s top 5 is Constellation Brands, Inc. (NYSE:STZ). Kevin Kenny and his team have boosted their investment by 19% to 606,831 shares worth a little over $100 million at the end of the quarter. Hedge fund interest in Constellation Brands, Inc. (NYSE:STZ) cooled down a bit during the second quarter, as the number of fund invested fell to 69 at the end of June, from 71 at the end of March. Billionaire Dan Loeb is also bullish on this stock, having increased his fund’s position by 14% to exaclty 2 million shares worth $331 million. In a bid to spur growth, Constellation Brands, Inc. (NYSE:STZ) has decided to enter the highly-lucrative craft beer industry. The company has completed the acquisition of Ballast Point Brewing & Spirits in December 2015, in a deal valued at $1 billion. Ballast Point is one of the fastest-growing companies in the industry and boasts a depletion rate (sales from distributors to retailers) of more than 60%. Using Constellation Brands’ extensive distribution network, Ballast Point, based in California, has started expanding towards the east coast, having announced in May the opening of a brewery in Virginia. Being one of the fastest-growing craft brewer, surely Ballast Point will continue to expand its portfolio despite a current slowdown in the industry.

Bullish On Alibaba

Next up is Alibaba Group Holding Ltd (NYSE:BABA), a new addition to Emerging Sovereign Group’s equity portfolio. Over the course of the second quarter, the management team amassed approximately 1.42 million shares valued at $113 million according to the fund’s recent 13F filing. Alibaba Group Holding Ltd (NYSE:BABA) registered a boost in popularity among the funds tracked by Insider Monkey, with the number of long hedge fund positions having increased to 69 by the end of the second quarter, from 67 registered three months earlier. Eric Mindich‘s Eton Park Capital was also among the funds that initiated a stake in the e-commerce giant during the quarter, having amassed 1.16 million shares, reportedly worth $92.1 million. JPMorgan Chase & Co. have recently shuffled the analysts covering Chinese stocks and the new analyst handling Alibaba Group Holding Ltd (NYSE:BABA) is upbeat about the prospects of the company. The firm has an ‘Overweight’ rating on the stock and has assigned a price target of $135 per share, up from the previous target of $129 per share. According to a note to investors, JPMorgan sees solid growth opportunities in the e-commerce and cloud computing divisions.

Turn over the page to read about Emerging Sovereign Group’s tree largest positions at the end of June.

Dumping Molson Coors

Kevin Kenny and his team have continued to reduce exposure to Molson Coors Brewing Company (NYSE:TAP) during the quarter, having cut their stake by 18% to 1.27 million shares worth an estimated $128 million. As of the end of June, 57 of the funds in our database reported a stake in Molson Coors Brewing Company (NYSE:TAP), up from 52 recorded at the end of March. Billionaire Ken Griffin, on the other hand, is still bullish on the stock, having boosted his fund’s stake by 46% during the quarter. According to its latest 13F filing, Citadel Investment Group holds 2.28 million shares of Molson Coors, a position valued at $230 million. Molson Coors Brewing Company (NYSE:TAP) has a market cap of $22 billion and pays an annual dividend of $1.64 per share, which provides investors with a 1.59% yield. The stock is currently trading at a trailing Price-to-Earnings (P/E) ratio of 52, significantly higher than the industry average P/E of 8, as reported by Yahoo! Finance.

Nutrition Is A Big Deal Nowadays

Emerging Sovereign Group’s management team is still bullish on Mead Johnson Nutrition CO (NYSE:MJN) having further increased its stake in the company. According to its recent 13F filing, the fund held 1.45 million shares at the end of June, a position valued at $132 million. Hedge fund interest towards Mead Johnson Nutrition CO (NYSE:MJN) plummeted during the quarter, with the number of long bets having fallen to 28 at the end of June from 40 registered a quarter before. Ken Griffin’s Citadel Investment Group had its stake reduced by 31% to 1.09 million shares worth $99.1 million at the end of the quarter. A manufacturer of children’’s nutrition and other nutritional products, Mead Johnson Nutrition CO (NYSE:MJN) is currently trading at $82.80 per share, up by 8% year-to-date. For the second quarter, the company posted a profit of $155.1 million, topping analysts’ profit forecasts. Mead Johnson reported $941.5 million in revenue and adjusted earnings of $0.88 per share, while analysts’ had projected $0.78 per share on the back of $958.9 million per share.

Yum! Still On Top

Despite another large cut in position, Yum! Brands, Inc. (NYSE:YUM) is still the fund’s’ number one equity bet. After a 40% reduction in the first quarter, the management team further decreased its investment by a quarter to 1.61 million shares worth some $133 million. At the end of June, roughly 13% of Yum! Brands, Inc. (NYSE:YUM) common stock was held by 46 of the funds followed by Insider Monkey, down from 51 a quarter before. Among these funds, Keith Meister’s Corvex Capital held the largest stake in Yum! Brands: 21 million shares valued at $1.74 billion. Yum! Brands, Inc. (NYSE:YUM) is the parent company of famous brands Pizza Hut, KFC, and Taco Bell. Earlier in August, the company announced a new franchise deal with its partners in Europe to open some 300 new restaurants in central and eastern Europe. The company is also looking to reduce the number of stores it owns in China and plans to spin-off its Chinese business into a separate public company in October, with the new entity to work on a franchise-based model.

Disclosure: none.