Jason Karp’s Biggest Contributors in Q2 Amid Tourbillon’s Disappointing Performance

Tourbillon Capital Partners L.P. is a New York-based hedge fund founded by Jason H. Karp, a former portfolio manager at Steve Cohen’s SAC Capital. His $3.7 billion hedge fund, launched in mid-January 2013 with approximately $250 million under management, has been one of the most successful and hottest new hedge fund startups in recent years. The asset manager’s flagship fund, which makes long and short bets on stocks, generated a net-of-fees return of 20.7% in 2013, 10% in 2014 and 10.8% last year.

However, the New York-based long/short equity hedge fund has not been doing very well thus far in 2016, as Tourbillon was down by 12.9% this year through July. In a second quarter letter to investors, Mr. Karp blames the low interest-rate environment for his firm’s disappointing performance, saying that “this entire phenomenon is related to global rates and lack of return alternatives.” As previously mentioned by Insider Monkey, this year was supposed to offer the best environment for the hedge fund industry until the Fed’s inaction indicated that the low-rate environment will stay here longer than anticipated. “As interest rates rise, the stock market on the whole often suffers — and that’s when active managers shine. As rates fall, the average outperformance of active funds declines, and indexing looks better,” said Mr. Karp in the aforementioned letter to investors.  In this article, we’ll run through a list of five strong-performing stock picks that contributed to Tourbillon’s 1.5% return for the second quarter.

At Insider Monkey, we track around 765 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details).

AT&T Inc. (NYSE:T)

– Shares Owned by Tourbillon Capital Partners L.P. (as of June 30): 6.94 Million

– Value of Tourbillon Capital Partners L.P.’s Holding (as of June 30): $299.88 Million

– Q2 Return: 11.5%

AT&T Inc. (NYSE:T) was the third-largest position in Tourbillon Capital’s portfolio at the end of the second quarter, constituting nearly 6.0% of that portfolio’s value. Jason Karp’s hedge fund upped its stake in AT&T by 12% during the April-to-June period, to 6.94 million shares valued at $299.88 million on June 30. The Dallas-based internet, phone and television services provider has seen its market cap jump by 21% since the beginning of the year. Merrill Lynch analysts recently compiled a list of stocks with strong yield at a reasonable price, with AT&T being one of the top-four dividend telecom stocks rated a ‘Buy’ at Merrill Lynch. The telecom giant pays shareholders a quarterly dividend of $0.48 per share, which yields 4.58% annually, a much heftier yield compared to the standard government bond rate. There were eight billionaire money managers followed by Insider Monkey with stakes in AT&T at the end of June, up from seven recorded at the end of the first quarter. Adage Capital Management, founded by Phillip Gross and Robert Atchinson, was the owner of 10.60 million shares of AT&T Inc. (NYSE:T) at the end of June.

DISH Network Corp (NASDAQ:DISH)

– Shares Owned by Tourbillon Capital Partners L.P. (as of June 30): 3.70 Million

– Value of Tourbillon Capital Partners L.P.’s Holding (as of June 30): $193.62 Million

– Q2 Return: 13.3%

Jason Karp’s $3.7 billion hedge fund owned almost 3.70 million shares of DISH Network Corp (NASDAQ:DISH) at the end of the second quarter, 2.10 million shares less than it did at the end of the first quarter. The U.S. provider of video services has seen its stock decline by 8% thus far in 2016. DISH Network added around 527,000 paid subscribers during the three months ended June 30, less than the 638,000-figure recorded for the same period of the prior year. Meanwhile, net subscribers dropped by 281,000 in the second quarter, compared to the 81,000-subscriber loss recorded in the second quarter of 2015. The company finished the second quarter with around 13.6 million pay-TV subscribers, down from 13.9 million recorded at the end of the second quarter of 2015. John Brennan’s Sirios Capital Management owns 1.40 million shares of DISH Network Corp (NASDAQ:DISH) as of June 30.

The second page of this article will reveal three other strong-performing stock picks of Tourbillon Capital Partners.

Pfizer Inc. (NYSE:PFE)

– Q2 Return: 19.8%

According to Tourbillon’s aforementioned letter to investors, Pfizer Inc. (NYSE:PFE) was a strong contributor to its positive second quarter performance. However, the long/short equity hedge fund sold out its entire stake of 7.00 million shares of Pfizer at some point during the second quarter of 2016. The 7.00 million-share stake was worth $207.48 million on March 31, representing the eighth-most valuable holding in the hedge fund’s portfolio at that time. Several years ago, the U.S. drug maker mentioned the possibility of splitting into two separate entities: one that would focus on patent-protected innovative drugs and the other on established drugs that already lost their patent protection or are close to losing it. However, with all the fuss around the failed Pfizer/Allergan PLC (NYSE:AGN) multi-billion-dollar merger, the possibility of a spin-off has been downplayed. Even so, analysts anticipate a final decision on whether Pfizer will split its Innovative Health (IH) and Essential Health (EH) businesses into two separate companies by the end of 2016. Pfizer shares are up by 7% year-to-date. Ken Fisher’s Fisher Asset Management reported ownership of 31.72 million shares of Pfizer Inc. (NYSE:PFE) during the latest round of 13F filings.

Post Holdings Inc. (NYSE:POST)

– Shares Owned by Tourbillon Capital Partners L.P. (as of June 30): 3.04 Million

– Value of Tourbillon Capital Partners L.P.’s Holding (as of June 30): $251.57 Million

– Q2 Return: 20.2%

Tourbillon Capital trimmed its position in Post Holdings Inc. (NYSE:POST) by 1.37 million shares during the second quarter of 2016, to 3.04 million shares. The consumer packaged goods holding company has seen the value of its stock gain an impressive 33% since the beginning of the year. Several trustworthy news outlets wrote earlier this year that the cereal maker held discussions with ConAgra Foods Inc. (NYSE:CAG) regarding the purchase of the latter company’s frozen foods business, which is set to be spun-off later this year. The spun-off company will be known as Lamb Weston and will comprise ConAgra’s frozen potato, sweet potato, appetizer, and other vegetable products business. The discussions between Post Holdings and ConAgra apparently stalled however, and thus the spin-off is still on track for this fall. Ken Griffin’s Citadel Advisors reported ownership of 1.66 million shares of Post Holdings Inc. (NYSE:POST) as of June 30.

American Homes 4 Rent (NYSE:AMH)

– Shares Owned by Tourbillon Capital Partners L.P. (as of June 30): 9.86 Million

– Value of Tourbillon Capital Partners L.P.’s Holding (as of June 30): $201.93 Million

– Q2 Return: 29.1%

The New York-based hedge fund reduced its exposure to American Homes 4 Rent (NYSE:AMH) by 2.26 million shares during the three months ended June 30, having finished the second quarter with 9.86 million shares valued at $201.93 million. American Homes 4 Rent operates as a real estate investment trust (REIT) focused on acquiring, renovating, leasing and operating single-family homes as rental properties. The REIT owned 48,038 single-family properties in 22 states at the end of June, including 1,582 properties held for sale. American Homes 4 Rent reported core funds from operations, a measure of cash generated by an REIT, of $73.5 million for the second quarter, up from $45.3 million posted a year earlier. The REIT’s total revenue rose by 43.8% year-over-year to $221.0 million. Shares of American Homes 4 Rent have gained 34% since the start of the year. Ken Heebner’s Capital Growth Management acquired a new stake of 2.40 million shares of American Homes 4 Rent (NYSE:AMH) during the June quarter.

Disclosure: None