Elliott Management is one of the oldest hedge funds in the business, dating back to 1977. Paul Singer, a graduate from Harvard Law School, spent four years working in corporate law firms and the investment bank Donaldson, Luftkin & Jenrette before he established Elliott. During the second quarter the market value of the fund’s public equity portfolio decreased to $7.13 billion by the end of it from $8.14 billion at the start of it. Regulatory assets under the firm’s management currently amount to about $45.2 billion. An interesting aspect of Elliott Management’s latest 13F filing is the put positions it contains in companies that Singer is betting against, especially as these positions are not hedges against long positions in the same companies, but straight bets against them. As such, we decided to look at three of these prominent put option positions that the activist investor has in his portfolio, in Dunkin Brands Group Inc (NASDAQ:DNKN), Oracle Corporation (NYSE:ORCL), and Cognizant Technology Solutions Corp (NASDAQ:CTSH).
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 118% over the last 35 months and outperformed the S&P 500 Index by 60 percentage points (see the details here).
Follow Paul Singer's Elliott Management
During the June quarter Elliott Management initiated a position of put options underlying 497,900 shares of Dunkin Brands Group Inc (NASDAQ:DNKN), valued at $27.39 million. The holding represents 0.38% of the fund’s portfolio. So far this year the $4.99 billion franchisor of quick service restaurants has seen its stock price surge by nearly 23%. In its financial results for the second quarter Dunkin Brands Group Inc (NASDAQ:DNKN) managed to come out ahead of estimates for its top and bottom lines. However, with a PEG ratio of 2.26, the stock is likely overvalued, especially if we consider the shrinking free cash flow over the last twelve months coupled with its rather disappointing performance on the international stage. Ken Griffin‘s managed futures fund Citadel Investment Group shed 60% of its stake in Dunkin Brands Group Inc (NASDAQ:DNKN) during the second quarter, leaving it with 780,500 shares valued at $42.93 million.
Singer’s put option position in Oracle Corporation (NYSE:ORCL) was increased by 8% during the quarter to 610,000 underlying shares and was valued at $24.58 million. The stock price of the provider of enterprise software has dived by more than 12% year-to-date. Oracle Corporation (NYSE:ORCL) missed the top and bottom line estimates in its financial results for its fiscal fourth quarter of 2015 which ended in March. The company is engaged in a legal battle with Google Inc (NASDAQ:GOOG), having filed a lawsuit against it five years ago claiming that Google’s Android copies source code from Oracle’s Java platform. Recently the company added claims covering new versions of Android. Boykin Curry‘s Eagle Capital Management feels differently about Oracle Corporation (NYSE:ORCL) than Singer, as it raised its stake by 1% to 44.72 million shares valued at $1.93 billion during the second quarter.
Elliott Management decreased its put position in Cognizant Technology Solutions Corp (NASDAQ:CTSH) by 48% during the June trimester to 261,000 underlying shares valued at $15.94 million. The stock price of the $41.34 billion provider of IT, consulting, and business process services has surged by more than 28% this year as the company managed to beat both the top and bottom line estimates in its second quarter financial results. Singer, however, believes that Cognizant Technology Solutions Corp (NASDAQ:CTSH) is not sustainably priced at these levels. Citadel Investment Group increased its holding in Cognizant Technology Solutions Corp (NASDAQ:CTSH) by 43% during the June quarter to 2.45 million shares valued at $149.93 million.
Disclosure: None
