AlphaClone Introduces "Activist Masters" Fund Group

Today we published a new fund group called AlphaClone Activist Masters.  The group  clones the collective intelligence of fifteen renowned activist investors such as Carl Icahn, Relational Investors, Steel Partners, ValueAct Holdings, Pershing Square Capital Management and ten others. 

The group’s Top 2 Holdings clone, an equal weighted basket of 30 stocks made up of each managers largest two holdings and rebalanced quarterly beats the S&P500 by a whopping 8 percentage points annualized since 2000 and is has returned 40% in the past twelve months versus 25% for S&P500TR index (as of 2/7/2010).
 

 

What’s the clone hold today?  We’ll rebalance all our clone portfolios on the evening of 2/19 to reflect the latest public disclosure filings as of 12/31/2009 but for now, here’s what the portfolio currently holds ranked highest to lowest by disclosed market value:

 

1	GLD	SPDR Gold			16	FLS	FLOWSERVE CORP
2	IEP	Icahn Entpr LP			17	TXI	TEXAS INDS INC
3	BAC	BANK OF AMERICA C...			18	ARRS	ARRIS GROUP INC
4	TGT	TARGET CORP			19	RDC	ROWAN COS INC
5	EMC	E M C CORP MASS			20	PHH	PHH CORP
6	HD	HOME DEPOT INC			21	NYX	NYSE EURONEXT
7	FDML	FEDERAL MOGUL CORP			22	CVG	CONVERGYS CORP
8	BAX	BAXTER INTL INC			23	CF	CF INDS HLDGS INC
9	EBR+B	CENTRAIS ELETRICA...			24	BLUD	IMMUCOR INC
10	PFE	PFIZER INC			25	EPIC	EPICOR SOFTWARE
11	VRX	VALEANT PHARMACEU..			26	VLO	VALERO ENERGY
12	CVC	CABLEVISION SYS CORP			27	ADPT	ADAPTEC INC
13	SLE	SARA LEE CORP			28	MBI	MBIA INC
14	WEN	WENDYS ARBYS GROU...			29	ELGX	ENDOLOGIX INC
15	TIF	TIFFANY & CO NEW			30	CSTR	COINSTAR INC

 

 

Jim Chanos Bearish on China

Jim Chanos bearish on China but what's the best trade here? Any suggestions? http://www.nytimes.com/2010/01/08/business/global/08chanos.html

Hedge Fund Best Healthcare Ideas [BAX], [CHBT], [HGSI]

The healthcare sector seems to be getting a lot of play in the investing press lately.  Between all the talk on how to play the reform effort and the sector’s non-cyclical nature in an economy that’s struggling to gain momentum, it’s no wonder the sector is getting attention.  Fortune magazine’s latest issue has an article by Mina Kimes entitled “Returning to Health” where the author goes hunting for bargains in a “beat down sector”.

We thought it would be interesting to look at what hedge funds are doing in healthcare and more importantly which hedge fund “healthcare screen” makes the most sense for us to follow?   That last part about knowing which screen to follow is critical and that is exactly what AlphaClone empowers investors to do. 

Once signed in as a full member, it took me all of two clicks to find AlphaClone’s Sector Picks: Healthcare fund group.  That group combines all 177 hedge funds in the AlphaClone universe into one group and then “clone’s” the group’s collective intelligence around healthcare stocks.    A few more clicks on AlphaClone's "clone generator" and we see the group’s Best 1 Ideas clone, which holds 36 unique securities in the current portfolio (for a description of this clone strategy look here), returns 8.2% annualized since 2000 compared to 0.5% annualized for the S&P500 Healthcare Index.  The clone is also up 27.3% over the past year vs. 18.5% for the index (as of 2/1/2009).

Looking at the clone’s current clone portfolio it was easy to discern where hedge funds are placing their bets.  The three most widely held stocks in this clone’s current portfolio are Baxter International [BAX], China-Biotics Inc [CHBT], and Human Genome Sciences [HGSI]; each with three funds reporting new stakes.  The next most widely held healthcare stocks (each reporting two funds with new stakes) include Bard CR Inc [BCR], Immucor Inc [BLUD], Inverness Medical [IMA], Eli Lilly & Co [LLY], Mckesson Corp. [MCK], MDS Inc [MDZ], Onyx Pharmaceutical [ONYX] and finally Teva Pharmaceutical [TEVA].   The clone’s remaining 25 positions had one holder each amongst which Shire PLC [SHPGY] and Sirona Dental Systems [SIRO] garnered the largest allocation as a percent of the reporting manager's filing (each with a 0.6% allocation).

AlphaClone will rebalance all of its 3,100+ clone portfolio the evening of February 19th to reflect the latest hedge fund public disclosures.  It’ll be interesting to see what new healthcare stocks hedge funds will be betting on then, stay tuned.

Qualcomm Inc. [QCOM] Down over 14% - Should You Fish or Cut Bait?

Qualcomm Inc [QCOM] is selling off quite a bit after disappointing earnings today – the stock is off over 14% as of market close.  This stock is a hedge fund favorite or a “crowded hedge fund trade” which is what the most popular hedge fund holdings are often called.  There’s been much written about how these stocks tend to underperform and our research seems to support the same conclusion.  Our Hedge Fund Index Top 10 Popularity clone which invests quarterly in the 10 stocks that are the most widely held amongst hedge funds’ twenty largest positions returns an anemic negative 0.6% annualized since 2000 versus a negative 1% annualized for the S&P500TR index – not very exciting. 

So I guess that means you should stay away from QCOM or beat a hasty retreat if you’re currently “involved” with the stock.  Not so fast,  QCOM also happens to be a current holding in AlphaClone’s:

- Tiger Cubs Top 10 Popularity clone (rank #5)
- Value Masters Top 20 Popularity clone (rank #15)

Both the above clones are stellar performers returning 8.8% and 12.9% annualized since 2000 respectively (as of 1/27/2010)!  So is this a buy now or sell now opportunity?   The data above suggests that “crowded hedge fund trades” as a basket should be avoided, but not all crowded trades are bad – it all depends on the crowd!  Stay tuned – we update all clones on the evening of 2/19.

Apple Inc. [AAPL] Most Popular Hedge Fund Technology Holding

Apple Inc. is by far the most popular technology holding amongst AlphaClone's hedge fund universe.  With 35 hedge funds reporting the company as a top 20 holding vs. 25 holders for the next most popular stock, Qualcomm [QCOM].  This morning's iPad launch should make this stock a staple amongst the smart money technology holdings for many quarters to come.  The iPad product "feels" like a new catagory of computer being introduced; desktop, laptop, PDA/Smart Phone and now, the iPad (sorry Kindle!). 

Berkshire Hathaway: Clones vs. Stock [BRK.A, BRK.B]

With its acquisition of Burlington Northern, Berkshire Hathaway will now replace its acquisition target in both the S&P 500 and S&P 100 indexes.   There’s no doubt that had you bought a share of Berkshire on the first day of the year in 2000, you would be a very satisfied investor today.  The company’s class A/B shares returned roughly 100% since then (see graphs).    The S&P 500 had a total return of negative 6%. 

 

Buying the company’s shares means you are exposing yourself to two things; a) the company’s operating businesses (historically primarily insurance) and b) the public market investment prowess of  Warren Buffett and Charles Munger in deploying the insurance company’s “float” (i.e. the cumulative net between insurance premiums collected and insurance claims paid less a reserve).   But what if you didn’t want exposure to the company’s operating businesses?  What if instead, you simply wanted exposure to the company’s public equity investment portfolio (i.e. excluding debt and derivatives)?   Well of course that’s exactly what you get when you invest in AlphaClone’s Berkshire clones. 

We thought we’d take a look at how the Berkshire’s clone portfolios faired against the performance of the company’s shares over the past ten years.  The results are interesting – both the Berkshire Top 10 Holdings clone and the Berkshire Ten Best Ideas clones outperformed the company’s stock:

• The Top 10 Holdings clone, which simply holds the company’s ten largest equity positions each quarter, equal weighted, long only, returned 118.5% at 15.5% annualized volatility (slightly lower than the market)

• The 10 Best Ideas clone returned 171.8% at 18% annualized volatility (slightly higher than the market). You can find a description of the Best Ideas clone strategy in our glossary.

Financial Stocks Power Second Curve Capital's Clones to Early 2010 Lead

Second Curve Capital's clones took the early lead in 2010 powered by financial stocks  Primus Guarantee  [PRS], Synovus Financial [SNV] and Boston Private Financial Holdings [BPFH].  The fund's Top 3 Holdings clone which is free to access on AlphaClone is up 27.6% so far this year vs. 3.2% of the S&P500TR index (as of 1/19/2010).

Top Ten '09 Clone Portfolios

Nothing puts a cap on a roaring year for stocks like the performance in our top ten clone portfolios.  These clones returned two and three times your money in 2009.  How?  Baker Bros focuses on medical and pharmaceutical companies and hit home runs with Vanda Pharmaceutical [VNDA] and Ariad Pharmaceutical [ARIA].  Pershing Square did well with Borders Group [BGP] and General Growth Properites [GGWPQ].  OZ Mangement "banked" on the financial sector and succeeded with investments in Bank of America [BAK] and State Street [STT]. Greywolf Capital bet and won big with investments in mobile operator IPCS Inc [IPCS], shipping and logistics operator Navios Maritime [NM], and security firm Protection One Inc [PONE].  Rounding out the top ten, Symphony Asset Management did very well with Walter Energy [WLT] and Fortress' Top Holding clone benefited from having Brookdale Senior Living [BKD] as its top equity position throughout most of the year.   Finally, Eagle Value Partners did well with Interface Inc [IFSIA], Whirlpool Corp [WHR] and Discover Financial Services [DFS].  Here's the top ten list:

AlphaClone in Smart Money Magazine

AlphaClone was listed as one of six new financial startups seeking to help investors take more control of their portfolios. It's nice to be on that list. Here's the article.

A Big Thank You

It’s been a fantastic first year for AlphaClone and none of it would have been possible without the tireless efforts of my co-founders, Meb Faber and Jason Jones, our core technology team, Gary, Robby, Allison and Carlos and our patient and supportive families.  We also want to thank everyone who became a fan of ours and everyone who helped us fulfill our mission this year (too many to mention but you know who you are).  Last but not least we want to thank you – our members for the fantastic enthusiasm, patience and support you’ve shown.  From all of us at AlphaClone, we want to wish everyone a happy and safe holiday season and a joyful and prosperous 2010.