After perusing a couple of dozen 13F filings, I felt underwhelmed by new stock selections at these hyperactive, independent money management houses. My biggest surprise was their high portfolio turnover ratio. Many honchos took new positions or sold out losers to the tune of 80% to 90% of their capital base.
JANA Partners, for example, showed turnover at 100%. Its 3 biggest positions are Tiffany, Liberty Media and Whole Foods. I like Liberty but hold Charter Communications for its management dynamics, namely John Malone. Making it on stock selection in prosaic properties is OK so let's wish them luck and pesetas.
Conversely, Pershing Square Capital Management shows reasonably low turnover. Valeant Pharmaceuticals International is fully vetted out with Restaurant Brands International 36.6% of assets and Chipotle Mexican Grill 21.5%. Aside from Air Products & Chemicals, other concentrated positions are unrecognizable to me. What is Platform Specialty Products and Nomad Foods, some 15% of assets? Is this money management or swinging for the fences? Why didn't they have 25% of assets in a strong Internet house - Alphabet, even Amazon or Facebook?
This leads into my next point. Most of these high intensity players completely missed the play in Internet properties or even the financial sector, particularly banks and brokerage houses like Morgan Stanley, Charles Schwab, even JPMorgan Chase and Citigroup.
Tiger Global Management is an exception, with Amazon a 12% position and Alibaba at 5%. My personal portfolio finds me with 40% of assets in Amazon, Facebook, Alibaba and Alphabet. Another 25% rests in Bank of America, Schwab and Citigroup. No oil, no basic industrials excepting General Motors.
I don't get Paulson & Company with a static portfolio of just 21%, and top heavy in drug houses like Allergan, Teva Pharmaceuticals, Shire and Mylan N.V. American International Group crops up here and elsewhere. Yes. I know. New headman, but his predecessor couldn’t deal with the can of worms in terms of long tail loss reserves, a soft rate structure and flattish investment income. Why look for trouble unless you sniff turnaround in the air?
AIG is Icahn’s second largest position at 14% of assets. Give Carl high marks for low portfolio turnover but he's dealing in rank speculative properties - what I call ragamuffins: Herbalife, Freeport-McMoRan, Xerox and Cheniere Energy. Why look for trouble when you coulda gone to the moon with Internet paper which you can sell out over the wires in a minute? Just like he sold Apple.
Greenlight Capital interests me for its 29.5% position in General Motors. This counts up to $1.9 billion. But, GM's market capitalization sits around $50 billion. Management should brush off the Greenlight proposal for 2 classes of stock. Keep it simple. Earn $4 to $6 a share and pay out $2 in dividends. GM’s my gut play, my anticonsensus bet that so far hasn't paid off.
Apple pops up in Greenlight’s portfolio as an 8.7% position. You don’t see Apple widely held, the numero uno market capitalization. It just tacked on another 20% past few months. Why is it most of these guys won’t make love in the primary position?
Glenview Capital Management, a $15 billion capitalization, is heavy in healthcare with HCA Healthcare, Humana and Anthem top 3 positions. Aetna and Cigna also heavy weightings. Maybe they've figured out where healthcare premiums are going and what the medical cost ratio is going to be for major insurers. I own UnitedHealth Group, a big, aggressive operator, good cost construct and an aggressive premium rate setter.
Nobody dares predict how government policy pans out, but something has to give. You can't keep raising premiums 8% to 10% per annum. Take it out 5 years and middle class families will be spending half their disposable income on healthcare. This will lead to the equivalent of the bread riots in Paris, 1789. You know what followed on.
I like Coatue Management’s portfolio because it resembles mine. Huge turnover here while mine is minimal. Facebook pops out as a 9% position. I see Liberty Media here and elsewhere. Savvy management counts in the media sector. Consider Murdoch built an empire from scratch and now Time Warner and AT&T will come together. This is nearly a transformational deal for AT&T, a 5% yielder today that nobody likes excepting me.
Trian Fund Management is run by Nelson Peltz and Peter May, old friends going back to the days of Mike Milken and leveraged buyouts. Peltz and May through big positioning in a few properties hope to work with management and effect change. Concentrated holdings, fairly recent, include Procter & Gamble and General Electric, some 40% of assets.
I tried this schema decades ago with the New York Times Company and Caesars World. Then, I gave up, frustrated, finding it an extenuated power game. At the least Trian is dealing with solid properties and low volatility. They are patient operators, what I wasn’t.
Citadel Advisors interests me from the standpoint of how a $56 billion asset operator spreads its money. You'd expect to see concentrations in big cap properties, but Apple is an underweighted 1% position. Why not 5% fellas? Microsoft and Facebook are at 1%, too. I’d rate Citadel a confused cowardly lion. What I don't get is their huge turnover of assets, some 100%. Nothing was static. How do you rationalize such hyper activity?
Trouble with Third Point, too, for its very high asset turnover. All top 10 names are recognizable, but the rationale for a 24% position in Baxter International escapes me. I'll take a closer look. You begin to see banks herein, finally, with JPMorgan Chase and Bank of America 3% positions. There's Facebook and Alibaba totaling 7% but hardly overweighted. They could ask the Wizard of Oz for some courage.
Sotheby’s is at 3%, too. I deal actively with art auction houses, a very tough business, volatile and difficult to predict. You carry a high overhead in talented staff. I regard an auction house as comparable with a brokerage house. Price-earnings ratio for BID is too high to interest me.
I'm seeing something in Appaloosa Management’s portfolio that I don't see anywhere else, but comparable to what I hold. Namely, 20% of assets in energy related master limited partnerships. They own Energy Transfer Partners and Williams Partners while I carry Plains Group Holdings, bought when oil collapsed over year ago.
Plains yields 8% but nothing is secure in MLP land. We need to see oil futures approaching $60 for these properties to jitterbug. They’re leveraged, pay out 100% or more of distributable cash flow and in the midst of aggressive capital spending projects in the oilfields.
When I step back and view all these asset constructs I guess that few players have blown out the lights. This includes aggressive operators in mid-capitalization stocks, big cap operators in both growth and value sectors.
Many missed plays in Apple and Alphabet. This is not forgivable. Amazon has gone to the moon without most of these guys participating. Overweighting healthcare in the regulatory environment turning unfriendly risks price-earnings ratio contraction.
I hope the play in the financials isn’t over, but I could be wrong as the yield curve stays so flattish. Sensing that there's too much incremental oil supply coming from the U.S., alone, over 1 million barrels, I'm agnostic on my MLP holdings. Next 12 months tells the story.
Digging down to the bottom of my shoes, the basic theme in our low interest rate setting is aggressive concentration in growth stocks. Just be right on your picks.
Sosnoff owns: Facebook, Amazon, Alphabet, Charles Schwab, Citigroup, General Motors, Plains Group Holdings, Apple, AT&T, JPMorgan Chase, Bank of America, UnitedHealth Group and Freeport-McMoRan.
