The equity portfolio of Peter Adam Hochfelder’s Brahman Capital enjoyed a strong first quarter, with its 13 long positions in companies valued at $1 billion or more delivering weighted average returns of 11.5% during the period. A number of the New York-based fund’s top picks performed well in early 2015, including one of its small-cap picks, which actually performed so well that it pushed itself out of small-cap distinction during the quarter.
It’s investors like Hochfelder who add great value to our small-cap strategy system, as they are heavily invested in the success of their small-cap picks and have poured considerable resources into identifying undervalued or under-the-radar companies to invest in. We have found that collectively, hedge funds’ top small-cap picks provide a great investment opportunity, with our strategy having returned over 137% since it was launched at the end of August 2012, outperforming the market by more than 82 percentage points through the end of March (see the details).
We’ll get to that former small-cap pick later, but let’s start first with the fund’s top pick, Calpine Corporation (NYSE:CPN), which delivered solid if unspectacular returns of 3.34% for the quarter. Brahman’s position in Calpine Corporation (NYSE:CPN)was increased by 57% during the fourth quarter to 26.65 million shares valued at $589.73 million. The fund’s exposure to the stock also more than doubled during the fourth quarter to 16.79% from 8.12%, given the increased stake as well as the decline in the overall value of Brahman’s equity portfolio to $3.51 billion from $4.56 billion. Luminus Management was another fund bullish on Calpine Corporation (NYSE:CPN) during the fourth quarter, increasing its stake by 17%. While the overall number of funds invested in Calpine at the end of 2014 remained the same as at the end of the previous quarter, at 35, the amount of capital they had invested in the stock increased by more than 25%, which can’t be accounted for by the value of Calpine’s shares, which only rose 2% during the fourth quarter, so there was some very strong bullish sentiment on Calpine. Shares of the power generation company are now up by 15.83% over the past six months.
Valeant Pharmaceuticals Intl Inc (NYSE:VRX) was one of the strongest performing large-cap stocks of the first quarter, thanks in large part to the Canadian pharmaceutical company’s purchase of Salix Pharmaceuticals for $11.1 billion in February. Shares of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) skyrocketed by 38.79% as a result, which was great news for Brahman Capital, as it held a 3.69 million share position in Valeant worth $528.69 million entering the year; now worth considerably more. However, the fund might be kicking itself slightly after reducing its position in Valeant, which had previously been its top long position for over three years running, by 18% during the fourth quarter. Nehal Chopra’s Tiger Ratan enjoyed a monster quarter thanks to increasing her position in Valeant Pharmaceuticals Intl Inc (NYSE:VRX) by 47% during the fourth quarter, lifting her exposure to the stock to over 28%.
CBS Corporation (NYSE:CBS) occupied the third spot in Brahman Capital’s equity portfolio, with the position consisting of 8.64 million shares valued at $478.21 million. Shares of the entertainment and media company were up by 9.84% during the fourth quarter after a down 2014 in which shares slid by more than 10%. CBS Corporation (NYSE:CBS) made gains during the quarter partly on the finalization of the highly anticipated boxing match between Floyd Mayweather and Manny Pacquiao, which will be jointly broadcast by CBS’ Showtime, and HBO. The pay-per-view event could generate more than $300 million in revenue for the cable networks. Brahman had the greatest exposure to CBS Corporation (NYSE:CBS), while Eric W. Mandelblatt’s Soroban Capital Partners had the largest position at 13.37 million shares.
Brahman was also very bullish on Sirius XM Holdings Inc.(NASDAQ:SIRI) during the fourth quarter, raising its position by 40% to 109.29 million shares valued at $382.51 million. It was the second straight quarter the fund added heavily to its Sirius holding, after initiating it during the second quarter of 2014. Sirius XM Holdings Inc.(NASDAQ:SIRI) also enjoyed a strong quarter, gaining 9.14%, and has risen by 21.17% over the past six months. Short interest on Sirius has been increasing over the past few months however, as shares have appreciated. The funds in our database were also very cautious towards the stock during the fourth quarter, with fund ownership dipping to 35 from 46, and capital allocation declining to $1.61 billion from $1.83 billion. Billionaire Leon Cooperman was not one of those, as he increased his position in Sirius XM Holdings Inc.(NASDAQ:SIRI) by 1% during the quarter.
Commscope Holding Company Inc (NASDAQ:COMM) is the former small-cap stock mentioned in the opening, which has ballooned into a $5.58 billion company thnaks in part to a big first quarter in which returns came in at a meaty 25.01%. The first quarter surge was largely due to the network infrastructure provider’s purchase of TE Connectivity’s Network Solutions division for $3 billion in late January. Commscope Holding Company Inc (NASDAQ:COMM) has also outperformed earnings expectations for multiple quarters in a row, most recently posting fourth quarter 2014 non-GAAP adjusted earnings of $0.38 per share. Brahman’s position of 7.73 million shares valued at $176.42 million was the fund’s tenth-largest position, and the largest position in the stock by any fund in our database, followed closely by Maverick Capital’s new 7.06 million share position.
Disclosure: None
