Hedge Fund BlueCrest Capital’s Key Picks for 2013
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Some investors view hedge funds as slow, underperforming financial vehicles of yesteryear, which is a grave misconception. For those who have known where to look, there have been ways to beat the market by focusing on the best picks of the best fund managers. At Insider Monkey, we track 450 of the industry's 8,000-plus funds, and our small-cap strategy beat the market by 18% a year for more than a decade in our back tests. Since we started sharing this strategy with the public, it has returned 29% in just six months (learn how to use this yourself).
With this in mind, it's also important to take a look at the top stock picks of each fund individually, so let's focus on Michael Platt and William Reeves's BlueCrest Capital Management. We'll look at what BlueCrest's top five equity holdings were at the end of the fourth quarter to see how it was preparing for 2013.
Just a quick note before we get started: It's tempting to think that the delay in hedgies' 13F filings makes it impossible to track them, but in fact, just the opposite is true. Our research shows that this lag has actually aided outperformance, because on average, the smart money is early into its investments (see more about this here).
Assured Guaranty (NYSE: AGO) is the top long-only equity holding of BlueCrest, as it has been for four consecutive quarters. The hedge fund was upping its stake in the credit protection company by 23% last quarter, the most in its portfolio (ignoring new positions, obviously). Now, Assured has a decent amount of hedge fund interest, held by 26 of the managers we track, and it's worth noting that top-tier names like Jim Simons, Chuck Royce and Louis Bacon were upping their stakes last quarter. At a 27% discount below book value parity, Assured Guaranty is obviously cheap, and the sell-side does expect EPS to skyrocket by more than 60% this year. It's easy to see why BlueCrest is bullish.
Louisiana-Pacific (NYSE: LPX) and Range Resources (NYSE: RRC), meanwhile, sit at the No. 2 and 3 spots in the fund's equity portfolio, when we're looking at long-only holdings. Like AGO, Louisiana-Pacific and Range saw hedge fund interest in the mid-to-upper twenties, and both companies have seen their stock price generate a healthy return year-to-date. Range Resources has had the better 2013, returning over 22%, as the Street has nearly an identical EPS forecast on this independent gas explorer and developer as it has on AGO for the current year.
Louisiana-Pacific is sitting on similarly impressive bottom line prospects--analysts are predicting EPS to grow by 117-118% this year. So, we can begin to see that earnings momentum, especially in the nearer term, is one of the main screeners that BlueCrest employs in its equity portfolio.
Solazyme (NASDAQ: SZYM) saw the hedge fund hold its stake steady last quarter, as the renewable oil production player has had a solid 2013, returning just over 11%. Though shares trade at a trailing P/E north of 40x, the sell-side expects EPS to grow by 113.4% next year, with long-range estimates predicting 35% annual growth through at least 2017. Clearly, we can see what the crux of Solazyme's bullish thesis is, and it's worth noting that Wall Street's average price target on the stock indicates that a whopping 56% upside is expected from current levels. Ken Griffin (check out Griffin and Citadel's newest equity investments) and Steven Cohen were upping their stakes last quarter, giving BlueCrest some solid company.
CME Group (NASDAQ: CME), lastly, rounds out this top five, as BlueCrest upped its stake by 400% in the third quarter, and held the position steady last quarter.
Why has the fund been so bullish on CME?
Mr. Market has been very kind to this investment services giant since the start of 2013, as its shares have already popped more than 18% year-to-date. Unlike the previous four stocks we've discussed, CME's growth prospects are a bit more down-to-earth, but it's still a planet we'd live on. Analysts expect EPS growth to average 12% a year over the next half-decade while holding a slightly higher growth forecast (about 15%) for next year. Trading at a mere 0.93 times book, there's clear value here, and 31 of the hedgies we track are long CME, including Murray Stahl, Israel Englander and Cliff Asness. That's quite the 'growth at a reasonable' price play.
This article is written by Jake Mann and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool recommends Range Resources. The Motley Fool owns shares of CME Group and Solazyme. 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!