One Underrated Hedge Fund Worth Paying Attention To
Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
At Insider Monkey, we’ve recently teamed up with MarketWatch to provide investors with the Billionaire Hedge Fund Index, which returned 24.3% last year, beating the S&P 500 index by 8 percentage points. The purpose of this index is to articulate the mammoth potential of the best picks of the best hedge fund managers, and this dual-screening technique is something that we put to use in other market-beating strategies as well (see how to capitalize on them yourself).
With that being said, we track around 450 members of the smart money, and while you’ve probably heard of fund managers like George Soros, Warren Buffett and David Einhorn, there are also plenty of other qualified hedgies worth paying attention to. One such hedge fund is Curtis Schenker and Craig Effron’s Scoggin Capital Management. Schenker and Effron’s fund hasn’t received the press it deserves, and there’s a bit of evidence that suggests David Einhorn has watched a pick or two of this duo before making his own investment decisions in the past. That’s high praise.
As many talented hedgies so often do, Scoggin Capital has truly flown under the radar of the mainstream media, but we’re here to illuminate Curtis Schenker and Craig Effron’s latest fourth quarter 13F filing with the SEC. The two invest in a range of ETFs and options, but let’s take a look at their top five long-only stock picks, which have already returned an average of 8.5% year-to-date, outperforming the SPY by more than two percentage points.
As with the rest of their hedge fund peers, American International Group (NYSE: AIG) is the No. 1 stock pick of Schenker and Effron, and the leaner, meaner post-bailout insurer has been a particularly good investment since mid-November, returning 22.5% in this time. Despite their solid gains, shares of AIG still trade at a ridiculously low 0.55 times their book value—second lowest in the 78-stock property & casualty insurance industry. Equally as important, Wall Street’s average price target on this stock represents a 9-10% upside from current levels, indicating that Mr. Market still isn’t done with his bullish run.
ADT (NYSE: ADT) is an intriguing investment because it spun off from parent Tyco International last fall. Since becoming its own publicly traded entity, shares of the electronic security services provider have risen 23.3% in a little under five months’ time. Historically speaking, several empirical studies have shown that newly created spinoffs have massive appreciative potential, and ADT has actually beaten expectations in this regard. Joining Schenker and Effron in this stock include prominent hedge fund peers like Ken Griffin and George Soros, among others, so there’s clearly support from the smartest of the smart money.
Hertz Global (NYSE: HTZ), meanwhile, sits at the No. 3 spot in Scoggin Capital’s long-only equity portfolio, and the company has been quite an investment since officially acquiring Dollar Thrifty last November—shares are up 33.2% over this time. Most analysts expect the merger to boost Hertz’s earnings and cash flow capabilities significantly, and market guru Oscar Schafer has called the company a buy “at a 50% to 70% discount to our view of intrinsic value.” Trading at less than 11 times forward earnings and below parity with its sales valuation, Hertz looks astoundingly cheap at the moment, and we understand why Schenker and Effron upped their stake by 68% last quarter.
Chemtura, the specialty chemical manufacturer, has returned in excess of 50% over the past twelve months, and analysts’ average price target indicates there’s still a 24% upside to be had. Longbow Research—which holds a Buy rating on the stock—said it best when analyzing the crux of this company’s bullish thesis, citing its “acquisition of Solaris' bromine assets, a reinvigorated AgroSolutions pipeline, and an eventual divestiture of its consumer products” as key reasons to be optimistic.
Google, lastly, has made headlines of late for cracking the $800 mark for the first time since its 2004 IPO. Now trading slightly off their all-time high, many tech players are wondering what to do with the stock. While it may be tempting for some long-term investors to take their gains, Google still represents a nice ‘growth at a reasonable price’ play. At 14.8 times forward earnings and 3.6 times book, shares are at a slight discount to industry averages, and the sell-side’s forecasted EPS growth—17-18% next year—trumps even what’s expected of Apple by about four percentage points.
This article is written by Jake Mann and edited by Meena Krishnamsetty. Meena has long positions in Apple and Google. The Motley Fool recommends American International Group and Google. The Motley Fool owns shares of American International Group, Google, and Hertz Global Holdings and has the following options: Long Jan 2014 $25 Calls on American International Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!