Paul Singer‘s Elliot Management isn’t used to seeing losses, no matter how small. Hence the last quarter was a sore spot for the fund, as one of its portfolios, Elliot International fell by 0.5%. Launched in 1995, Elliot International has posted a loss in only seven quarters since then. The other fund, Elliot Associates, was flat over the first quarter. According to our metric, which is based on the weighted average returns of Elliot’s long positions in companies exceeding $1 billion in market cap, the fund experienced a 3.9% loss from its 37 qualifying holdings.
Singer might be a hard-nosed businessman according to some, but he is always within his rights to demand payment. He has a rich experience in the investment field, as he founded Elliot Associates in 1977. Less than a handful of funds have survived for that long. Stable returns have been the defining characteristic of this investment firm, and Elliot Associates has delivered on that front by posting about 13.8% annualized returns since its inception. The market value of Elliot Management’s equity portfolio stood at $9.59 billion at the end of 2014, which was 36% comprised of holdings in the energy sector. Thus the slump in oil prices explains a significant part of Elliot’s recent woes. Among the top picks that hindered the fund’s quarterly performance were Hess Corp. (NYSE:HES), EMC Corporation (NYSE:EMC), Twenty-First Century Fox Inc (NASDAQ:FOX), Anadarko Petroleum Corporation (NYSE:APC) and Juniper Networks, Inc. (NYSE:JNPR).
Our reasons to follow Singer’s fund are much different from its investors. We have included the fund in our database for the diversity of small-cap long positions that Singer maintains in the back-end of his portfolio. Our extensive research has shown that the top 15 collective small-cap picks of funds we track significantly outperform not only their best large-cap picks, but the market as a whole as well. In our back tests the top small-cap stocks among hedge funds beat the market by an average of nearly a percentage point per month between 1999 and 2012. We started forward testing the performance of these stocks at the end of August 2012, and since then, this strategy has returned 132% through March 11 of this year and beat the market by nearly 80 percentage points (see the details).
We shouldn’t be quick to judge Hess Corp. (NYSE:HES) by its 7.72% slide in the first quarter. The company has employed a new manufacturing process, Lean Manufacturing which has shaved off nearly $400,000 in costs from each of its North Dakota wells over the past eight months. It is believed that the price of oil only has to remain above $40 for the company’s wells to remain profitable. Hess Corp. (NYSE:HES) was Elliot’s most valuable equity position with its 17.80 million shares being valued at $1.31 billion. Cliff Asness‘ AQR Capital Management and Fir Tree, founded by Jeffrey Tannenbaum, were other prominent stockholders of Hess Corp. (NYSE:HES) at the end of 2014.
EMC Corporation (NYSE:EMC) declined the most among Singer’s aforementioned stock picks, a quarterly dip of about 13.65%. Elliot’s second largest equity holding contained 33.50 million shares valued at $996.29 million. The fund acquired an activist stake in the data and IT security company in the third quarter and has been urging the company’s management to spin off VMware, Inc. (NYSE:VMW), in which EMC has an 80% stake. Additionally it wants the company to repackage its other businesses as well in order to attract some acquisition interest. In February of this year Elliot agreed to a standstill agreement that runs until September, after the company agreed to put two of the fund’s nominees on its board. Kenneth Mario Garschina‘s Mason Capital Management increased its stake in EMC Corporation (NYSE:EMC) by 89% during the fourth quarter to 15.36 million shares valued at $456.81 million.
Elliot held about 14.90 million shares valued at $549.50 million in Twenty-First Century Fox Inc (NASDAQ:FOX) at the end of 2014. The entertainment company disappointed to the tune of -10.48% in the first quarter. Twenty-First Century Fox, which spun off from News Corp (NASDAQ:NWSA) in 2013 was looking to acquire Time Warner Inc (NYSE:TWX) but later withdrew its bid of $80 billion in light of a drop in its share price following the announcement of the possible acquisition. Donald Yacktman‘s Yacktman Asset Management holds the highest stake in Twenty-First Century Fox Inc (NASDAQ:FOX) among over 700 funds that we track.
Anadarko Petroleum Corporation (NYSE:APC) wasn’t a burden on Elliot’s portfolio like some of the others, as it delivered 0.71% quarterly returns. The oil and gas company has a 37.5% stake in Statoil ASA(ADR) (NYSE:STO)’s Yeti operation. Just this month it was announced that an oil discovery has been made at the Yeti prospect, but the size of the discovery is still being determined. Ken Griffin’s quant-based fund Citadel Investment Group held some 4.92 million shares of Anadarko Petroleum Corporation (NYSE:APC) valued at $406.15 million at the end of the year.
Its position in Juniper Networks, Inc. (NYSE:JNPR) is the third-largest in Elliot’s equity portfolio, being comprised of 39.24 million shares valued at $875.86 million. The stock gained about 1.16% in Q1. The technology company launched a new ‘compute-integrated’ switch and module geared to meet the high throughput and low latency requirements of financial services firms, and begins shipping in Q3. Ric Dillon’s Diamond Hill Capital held 8.45 million shares of Juniper Networks, Inc. (NYSE:JNPR) valued at $188.70 million at the end of 2014.
Disclosure: None
