Joel Greenblatt’s Magic Formula Worked During Q1 But Top Picks Undeperformed Mr. Market

As the first quarter of 2015 has finished we are able to provide you with relevant analysis reflecting the institutional investors’ equity portfolios returns based on the 13F filings among the hedge funds from our database. Insider Monkey tracks more than 700 hedge funds in order to analyze their returns and identify the most profitable stocks. Having set a unique methodology that calculates the returns of the 15 most popular small-cap stocks among a tracked group of hedge funds, Insider Monkey is giving therefore the possibility to discover a market segment that is generally overlooked by the general public. Furthermore, in the last 2.5 years, our small-cap strategy returned 132.0% compared with the S&P 500 ETF (SPY) return of only 52.6% (read more details about why we follow hedge funds’ activity).

Using this methodology we have been able to reflect the general performance of the Joel Greenblatt’s Gotham Asset Management. The fund  has about 900 positions in its latest 13F filing, of which 774 positions are represented by companies with a market capitalization of more than $1 billion. These positions moderately outperformed the market, obtaining an average return of 2.6% in the first quarter of 2015, while the S&P 500 Index ETF (SPY) has returned only 0.9 %.

The first three companies from Gotham Asset Management, in which the fund owns largest long positions are Bunge Ltd (NYSE:BG), Gilead Sciences, Inc. (NASDAQ:GILD), and Pilgrim’s Pride Corporation (NASDAQ:PPC). The stocks had an average negative return of 7.78% during the first three months of 2015, but the holdings in them represent a relatively small percentage of approximately 2.3% from the total portfolio value of $12.36 billion, denoting the fact that Joel Greenblatt is diversifying a lot his portfolio; nevertheless it is important to analyze the reasons that stay behind such a poor performance.

Bunge Ltd (NYSE:BG), a $12.2 billion agribusiness and food company, represents the largest holdings in Gotham Asset Management’s equity portfolio. The stake amasses 1.06 million shares, valued at $96.07 million, equal to 0.77% of Gotham’s portfolio value. Bunge Ltd (NYSE:BG)’s stock decreased by 9.07% during the first three months of 2015, impacted by a decline in revenues for the fourth quarter and a net loss caused by a drop in price of soybean meal and oil. With prices expected to stay at a low level, the company’s future revenues and profits are also in danger. Among the funds that we track, the largest shareholder of Bunge Ltd (NYSE:BG) is Ralph V. Whitworth’s Relational Investors, with 4.95 million shares.