Guest Post By Meena Krishnamsetty
Insider Monkey tracks nearly 400 long/short equity hedge funds. A small proportion of these fund managers had amazing stock picks that returned an average of at least 30% during the first quarter. King Street Capital’s Brian Higgins was the best performing fund manager in the first quarter (see the list of best hedge fund managers). We should note that we only took into account a hedge fund’s large-cap stock picks. We excluded options and convertible bond positions.
The S&P 500 index returned less than 13% during the first quarter including the dividends. So, how did these fund managers manage to beat the market by at least 17 percentage points. Below you can find the list of top stock picks of these best performing fund managers:
Sears (SHLD) was a top pick for Eddie Lampert, Bruce Berkowitz, and Francis Chou. The stock returned 108% during the first quarter.
Bank of America (BAC) is the second best performing stock in our list. Again Bruce Berkowitz benefited tremendously from Bank of America’s 72% first quarter return. Berkowitz has been a long term holder of the stock and was hurt badly last year after BAC’s huge decline. However, he deserves credit for his conviction. Billionaire John Paulson sold out his giant Bank of America position during the fourth quarter and missed out on its 72% first quarter performance.
Netflix (NFLX) gained 66% during the first quarter. Technology hedge fund manager John Hurley was among the few who were still bullish about Netflix after its 75% plunge from its 52-week high.
Seagate (STX) also returned 66% during the first quarter. Eddie Lampert, John Hurley, and Jamie Zimmerman are among the hedge fund managers with Seagate positions. David Einhorn has a large position in Seagate too. He didn’t make our list but his large-cap stock picks returned more than 24% during the first quarter.
Priceline (PCLN) and Salesforce.com (CRM) are two other technology stocks with more than 50% returns. John Hurley is the only top performing hedge fund manager with positions in these two stocks.
Apple (AAPL) is the most popular stock among hedge funds since the third quarter of 2011 when the stock was trading below $400 (see the 10 most popular stocks). Skeptics have been warning investors to stay away from these hugely popular names because they are likely to experience large declines when hedge funds decide to sell. We have been telling investors that Apple is hugely popular because it is extremely cheap for a high growth stock. The stock returned 48% during the first quarter.
Delphi Automotive (DLPH) is another popular stock in our list. Centerbridge Partners, Anchorage Advisors, and Litespeed Management benefited from its 47% return during the first quarter. Delphi is also a bright spot on billionaire John Paulson’s portfolio. He is one of the largest shareholders of the company.
Gap Inc (GPS) returned 41% during the first quarter. Eddie Lampert had nearly $600 million invested in the stock. Francis Chou also had a small position in the company.
The rest of our list is dominated by financial stocks. Warren Buffett says that he attempts to be fearful when others are greedy and to be greedy only when others are fearful. Buffett was among the fund managers who added or initiated new positions in mega-cap banks like Wells Fargo (WFC), JP Morgan (JPM), Citigroup (C), Goldman Sachs (GS), and American International Group (AIG). Wells Fargo gained 24% and the rest of the stocks gained at least 32% during the quarter. Bruce Berkowitz had more than $2 billion invested in AIG. We never liked AIG but we have been recommending mega-cap banks as long-term investments during the darkest days of last summer.