$8 Billion Hedge Fund’s Top Energy Picks

Eric Mindich‘s Eton Park Capital is preparing to dip its fingers in the energy industry after last year’s relatively successful evasion, when the fund managed to stay clear of the companies whose top and bottom lines crumbled in light of the tumbling oil prices. In an investor letter dated January 16 and seen by Reuters, the 47 year old investment manager expressed his future plans.

Mindich founded Eton Park in late 2004 by raising an impressive $3.5 billion. This was despite a rather unusual redemption clause, which subjected investors to fees as high as 6% if they were to withdraw their money before four years. That feat could only have been achieved given Mindich’s exceptional credentials. After just four years at Goldman Sach’s Equities Arbitrage desk, he was promoted to head the department, which he made into one of the most profitable divisions of the bank within two years. Consequently, at the age of 27 he became the youngest partner at the firm. As of the end of 2014, the market value of Eton Park’s equity portfolio stood at $7.08 billion, as compared to $8.5 billion a quarter earlier. Financial sector constituted 35% of the fund’s holdings, while energy stocks amassed only 6% of the portfolio value at nearly $407.57 million. The top three energy companies included Williams Companies Inc (NYSE:WMB), Marathon Petroleum Corp (NYSE:MPC) and Cheniere Energy, Inc. (NYSEMKT:LNG).

Eton Park has returned nearly 45.4% in the last three years. Compare this with the 55% return of  S&P 500 ETFs since August 2012, and more importantly with our small cap strategy, which is based on popular small cap companies among over 700 hedge funds that we track and have been sharing these stock picks in our newsletters since 2012, returning a staggering 135% during this period. Analysing several years of 13F filings, our research has uncovered that the best investing ideas of hedge funds are not the large cap companies, but their small cap picks. However, these investment firms are bound by their large sums of capital which they need to generate more fees, but they also serve as an impediment to investing entire portfolios in the small cap companies. Although none of the companies in this article is a small cap, it is still interesting to see the direction in which the wind is blowing on the Wall Street.

As part of his strategy to reduce exposure to the energy industry, Mindich slashed Marathon Petroleum Corp (NYSE:MPC)‘s holding in his portfolio by 97% to 56,514 shares valued at $5.10 million during the fourth quarter. The $26.27 billion company  is up by about 3.2% over the last 52 weeks. David Shaw of D E Shaw has been very bullish on Marathon Petroleum Corp (NYSE:MPC) during the fourth quarter as he upped the holding by 38% to 10.03 million shares valued at $905.24 million.

Marathon Petroleum delivered stellar financial results for the fourth quarter including Earnings per Share (EPS) of $2.86 which beat estimates of $1.48 and revenues of $22.34 billion which were also $2.48 billion higher than expected. The stock also sports a reasonable dividend yield of 2.08% and is trading at a forward earnings multiple of 10.66.

Eton Park also held some 1.5 million shares valued at $105.6 million equivalent of Cheniere Energy, Inc. (NYSEMKT:LNG) ‘Call’ options. The hedge fund interest in the company rose during the fourth quarter as number of hedge funds, among those that we track, rose to 75 funds with aggregate investment of $7.96 billion versus 69 funds with $8.18 billion a quarter earlier. Seth Klarman‘s Baupost Group held 13.81 million shares valued at $972.03 million. Cheniere Energy, Inc. (NYSEMKT:LNG) is up about 47% over the last year. Exports form the Sabine Pass, which is one of the two Cheniere Energy’s terminals is expected to commence by the end of 2015.

 Disclosure: none