The year 2016 has not been good for hedge funds, which are currently being criticized over their general underperformance. This year has also been bad for billionaire Leon Cooperman’s Omega Advisors In September, the US Securities and Exchange Commission accused Cooperman and his firm of insider trading. If proven guilty, the billionaire could end up selling some of his holdings to pay for the penalties. It has gotten to a point that the fund is said to be setting aside some of its assets to pay for legal costs in case they spiral beyond projections.
Meanwhile, based on Insider Monkey’s comprehensive back-test, Omega Advisors returned 0.04% per month between 1999 and 2012 and -0.42% per month between 2008 and 2012 from its positions in companies with market caps above $20 billion, lagging behind S&P 500 returns of 0.32% per month between 1999 and 2012 and 0.29% per month between 2008 and 2012. To be clear, Cooperman is a good stock picker, he is just not good at picking large-cap stocks. Cooperman’s all stock picks outperformed the S&P 500 Index by more than 6.5% annually between 1999 and 2012. So, you can potentially achieve much higher returns if you ignore his large-cap picks, like Alphabet Inc (GOOG) or Microsoft Corporation (MSFT), and focus on his smaller stock picks.
Amid the negative perception on hedge funds and some of the people that run them, Insider Monkey points out that there still are high-performing hedge funds worth the investment; the 30 mid-cap stocks that these hedge funds had selected went on to generate a return of 18% in the 12 months ending November 21, surpassing the S&P 500 Index’s 7.6% return in the same period. And out of 659 hedge funds tracked by Insider Monkey, 627 funds containing at least 5 long positions in companies valued at $1 billion or more have gained 8.3% in returns on average from their long picks, a full 5.0 percentage above S&P 500 ETF returns. Nevertheless, it pays to be aware of the stock picks that Cooperman made.
As of the third quarter, Omega Advisors decreased its holding in American International Group Inc (NYSE:AIG) by 17% to about 2.40 million shares valued at $142.28 million. The insurance company has engaged in a couple of M&A transactions last month, during which it agreed to transfer its life insurance business in Japan to FWD Group and closed the sale of the International Finance Centre Seoul to Brookfield Asset Management Inc (NYSE:BAM). Recently, Barclays upgraded the insurer to “Outperform” from “Market Perform” and attached a $75 price target, projecting that the company will benefit from federal tax cuts in 2018.
Year to date, the company’s stock rose by 6%. Among hedge funds tracked by Insider Monkey, 82 held positions in American International Group Inc (NYSE:AIG) at the end of the third quarter. These positions, worth more than $6.99 billion in the aggregate, represented around 12.30% of the outstanding stock.
Omega Advisors also unloaded 38% of its Alphabet Inc (NASDAQ:GOOG) position in the third quarter, ending the period with 161,156 class A shares worth $129.58 million. The company recently formed a new unit called Waymo, which consists of the self-driving car project formerly under Google. Though the new unit, Alphabet is planning to work with other companies for the self-driving technology, gearing its focus beyond creating a separate vehicle without steering, while putting the project into the position of potentially generating revenue sooner than previously expected. Among hedge funds tracked by Insider Monkey, 134 held positions in Alphabet Inc. (NASDAQ: GOOG) at the end of the third quarter, up from 126 in the second quarter.
The third-quarter selloff at Omega Advisors also affected Allergan plc (NYSE:AGN). The hedge fund’s holding in the drug maker decreased by 130,090 shares during the period to 541,122 shares valued at $124.63 million. Amid plans by US President Donald Trump to address the issue of rising drug prices, the company revealed its business strategy in the near future, which includes seven Phase 3 drug development programs, the search for a new use for Botox, and acquisitions that could reach up to several billion dollars. Year to date, the drug maker’s stock suffered a sharp 38% fall and is recently at record lows not reached since early 2014. Among hedge funds tracked by Insider Monkey, 115 held shares in Allergan plc (NYSE:AGN) at the end of the third quarter, down by 16 compared to the preceding quarter.
Omega Advisors also divested Walgreens Boots Alliance Inc (NASDAQ:WBA) stocks during the third quarter, resulting in an 11% decrease in shares held to 1.09 million shares worth $87.58 million at the end of the period. Speaking of divestments, the pharmacy is said to be closing in on a deal to sell some branches as a concession to complete its merger with Rite Aid Corporation (NYSE:RAD). Potential buyers for the almost 1,000 stores up for sale include retailer Kroger Co (NYSE:KR). Amid numerous fluctuations, the pharmacy’s stock price increased year-to-date by only 3%. 60 hedge funds tracked by Insider Monkey held positions in Walgreens at the end of the third quarter, down from 67 in the preceding quarter.
Alphabet Inc. (NASDAQ: GOOGL) was not the only tech giant affected by Omega Advisors’ shrinking positions. The hedge fund also divested about 31% of its holdings in Microsoft Corporation (NASDAQ:MSFT), shrinking its position in the software giant to 1.05 million shares worth $60.51 million at the end of the third quarter. The Windows maker recently closed its $26 billion acquisition of professional networking website LinkedIn, the largest deal in company history. Following the transaction, analysts from Deutsche Bank and Oppenheimer raised their price targets on the company to $75 from $79 and to $70 from $65, respectively, while keeping their “Buy” and “Outperform” ratings.
Meanwhile, the company touted its advances in its foray into hardware, claiming that sales for its Surface computers surged partly due to consumer disappointment over the Apple Inc. (NASDAQ:AAPL) MacBook Pro. The tech giant recorded a 14% year-to-date increase in stock value. Nonetheless, among hedge funds tracked by Insider Monkey, 126 had shares in Microsoft Corporation (NASDAQ:MSFT) at the end of the third quarter, with a cumulative value of $18.14 billion, or 4.70% of the company’s outstanding stock.
Omega Advisors’ sell-off continued with Dow Chemical Co (NYSE:DOW), as the hedge fund’s holding shrank by almost 22% to 1.56 million shares, with valuation at $80.74 million. The chemical company recently expressed optimism over the planned completion of its merger with E I Du Pont De Nemours And Co (NYSE:DD) in the first quarter of 2017. The statement follows delays in Europe on the regulatory approval process for the mega-deal, which aims to form a $130-billion-market-cap company to be called DowDuPont. The chemical company’s stock rose 12% year to date. Among hedge funds tracked by Insider Monkey, 47 retained holdings in Dow Chemical Co (NYSE:DOW), which amounted to a total of $2.69 billion, or 4.50% of the outstanding stock, as of the end of September.
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