Recently in our hedge fund database, which covers 700+ prominent investment managers, we have spotted similar long positions in the portfolios of SkyTop Capital Management and Greenlight Capital. The stocks are Micron Technology Inc (NASDAQ:MU), SunedisonInc (NYSE:SUNE), Liberty Global plc (NASDAQ:LBTYK), NorthStar Asset Mgmt Group Inc (NASDAQ:NSAM), and Scientific Games Corp (NASDAQ:SGMS). So, what is it: imitating, coincidence, or thorough investment analysis by both funds? Well, leaving for now the debates about who mimics who behind, let’s better take a look at how Dan Sobol and Lisa Hess, the founders of SkyTop Capital, and David Einhorn, who manages Greenlight Capital, treated their positions during the last quarter and how these stocks performed over the course of the year. But first, a short introduction to the funds mentioned above.
SkyTop Capital Management is a New York-based hedge fund established in 2010. The fund was created by Dan Sobol and Lisa Hess, and currently has around $350 million in its 13F portfolio. Sobol and Hess previously worked together at Loews Corporation (NYSE:L), where Sobol was the portfolio manager and Hess was the founding partner. One of the interesting strategies that SkyTop Capital Management uses in its investing approach implies picking special situations and distressed firms. David Einhorn’s Greenlight Capital is another New York hedge fund, but with a much longer track record, of almost 20 years. His fund specializes mostly in technology stocks. Einhorn allocated around 45.3% of the $7.91 billion equity public portfolio that he managed as of March 31 towards that sector. Among the general public, Einhorn is famously-known for identifying poorly performing stocks which he uses as targets for short-selling.
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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.
The first stock on the list is Micron Technology Inc (NASDAQ:MU), in which SkyTop Capital Management had 782,005 shares valued at $21.22 million at the end of the first quarter of 2015. None of these hedge fund managers are happy today as Micron shares are getting crushed after disappointing earnings results. Morgan Stanley downgraded the stock last week. Here is what they said after Micron’s earnings: “A disappointing quarter, worse than we had expected when we downgraded the stock last week. The August quarter was guided to about $0.40, at midpoint, vs. our estimate of $0.53 and consensus $0.66. Price weakness has spread to server, as we had forecast, but we were surprised by DRAM costs rising in the August quarter, as production continues to be below our estimates due to the product transitions.” Morgan Stanley now has a $19 price target and this stock will be dragging Einhorn’s second quarter returns heavily. Unlike SkyTop Capital Management, which did not make any adjustments to its position during the first three months of the year, Greenlight Capital decided to increase its stake in the company by 8%, ending up holding 33.55 million shares, valued at $910.20 million.
Let’s turn our attention to a brighter stock for both managers: SunEdisonInc (NYSE:SUNE), which is a global $8.76 billion renewable energy company. Its holding in SkyTop’s portfolio stood at 432,502 shares worth $10.38 million. Meanwhile, Greenlight Capital possessed around 24.95 million shares valued at $598.90 million at the end of March. Both hedge fund managers decided to hold their stake in the company unchanged during the first quarter. Over the last year the stock has returned 41.42%, and one of SunEdison Inc (NYSE:SUNE)’s recent announcements was the acquisition of Continuum Wind Energy Limited in India, which will potentially allow the stock to continue its rally. Also, the company is expanding its wind asset base in order to become sustainable for future renewable energy development.
