Barron’s Best 100 Hedge Funds: 2015 List

From Barron's Penta:

Indexing may be in style, but old-fashioned stockpickers rule our list.

Equities dominated Barron’s Penta top 100 hedge fund rankings for the second straight year on the back of a record-breaking bull market now well into its seventh year. Once again, Larry Robbins’ Glenview Offshore Opportunity fund claimed the No. 1 spot, with an impressive three-year annualized gain of 57%.
Even with the recent gyrations in equity markets, stockpicker Robbins is bullish.

“The market continues to show favorable conditions, including valuations that remain attractive, excessive corporate cash balances, and underlevered balance sheets,” says Robbins. What’s more, he sees corporate executives and boards more open to share repurchases, capital improvements, and acquisitions.

Two other positives: Robbins expects the economy to grow at a solid rate and sees systemic risk ratcheted down by central bank and regulatory policies.

Accordingly, he continues to find opportunities, noting that 40% of his top 20 performers last year were new to his portfolio. For example, he established a 14% stake in the country’s largest operator of animal hospitals -- VCA (ticker: WOOF). He sees the industry as defensive, and the shares cheap at 14.5 times 2015 earnings, and expects top-line expansion of 5% to 6% for the business after several years of dormant growth following the financial crisis. VCA is now in the midst of a $400 million share buyback; the company is making more acquisitions, and the stock has soared from $32 to $53 since Robbins moved in just two quarters ago.

The stellar returns of Robbins and others on our Best 100 list stand out in a year when oil prices plummeted, the U.S. dollar surged, the Federal Reserve kept bond investors on edge, and the Cold War suddenly heated up in Ukraine. Such challenges proved difficult for many funds. Many high-caliber firms didn’t qualify for our list this year, including Ray Dalio’s Bridgewater Associates, David Einhorn’s Greenlight Capital, Chase Coleman’s Tiger Global, and Paul Singer’s Elliott Management.

Another measure of the challenging environment: the closure of some venerable fund names, including Dan Arbess’ Perella Weinberg Xerion fund, which had specialized in distressed credit and special situations, and Brevan Howard’s commodity fund. Several macro funds also shut down, including Josh Berkowitz’s Woodbine Capital Advisors, Keith Anderson’s Anderson Global Macro, and Kingsguard Advisors. And Everest Capital shuttered six of its seven funds after being smacked by the Swiss franc. Industry data analyst HFR reported that in all, 864 funds closed in 2014, a slight decrease from 904 the year before. 

The Barron’s Penta survey underscores the great disparities in recent hedge fund performance, a source of controversy to investors who pay top dollar and pushed industry assets past the $3 trillion mark by at least one tally last year. According to BarclayHedge, the average hedge fund returned 7.36% annualized over the three years ended in 2014 (our benchmark); the average for our Best 100 exceeded 21%, net of fees, about a percentage point better the average return of the Standard & Poor's 500.

The good news for investors is that the average hedge fund management fee declined to 1.51% from 1.54% last year, while performance fees dropped to 17.8% from 18.2%, says HFR.

Like Robbins, almost half of our best performers invested in stocks. Many are great long-term investors who don’t trade frequently, and others, such as Nelson Peltz’s Trian Partners (No. 87), William Ackman’s Pershing Square (No. 54), and Robbins, use their equity stakes to lobby for corporate changes. 

Our No. 2 this year is a stockpicker, Richard Mashaal of Senvest Partners, who registered an annualized gain of 44% on the strength of selections like DepoMed (DEPO), which makes pain-management drugs; videogame maker Take-Two Interactive Software (TTWO), publisher of Grand Theft Auto; and Howard Hughes (HHC), a real estate developer whose portfolio includes the South Street Seaport in New York. 

Michael Masters $768 million Marlin fund claimed the third spot by focusing primarily on long equity positions, registering three-year annualized returns of 41.63%....MUCH MORE