One of billionaire Marc Lasry's biggest market fears came true in November when the Democrats regained controlled of the House of Representatives, winning 235 of the 435 seats. The chairman and CEO of $9.7 billion investment firm Avenue Capital warned back in March that a Democrat-controlled house would be bad for the market, which he said wants "a little bit of stability, and they're not going to have that at all."
Lasry reiterated that stance this month, suggesting the market's devastating Q4, which has crushed many of the 30 Most Popular Stocks Among Hedge Funds, is partly due to fears over the turmoil that will ensue in January when the Democrats officially take over the House. "What you're going to see in January is just problem after problem. And I think the market has started realizing that," Lasry said on CNBC's Fast Money Halftime Report.
It should be stressed that Lasry, who's also co-owner of the Milwaukee Bucks, does not fear Democrat governance. In fact, Lasry is a staunch Democratic supporter, raising funds for both Hillary Clinton and Barack Obama during past election cycles. However, he does fear the uncertainty that will prevail in the marketplace should the Democrats push for further investigations into possible collusion between President Trump and Russia that could've impacted the 2016 election or even try to impeach him, though the latter does not appear to be a goal of leading Democrats.
Despite those fears, Lasry, whose personal fortune stands at $1.8 billion according to Forbes' real time rankings of the world's richest people, is still relatively bullish on the stock market for 2019. Speaking at the Milwaukee Business Journal's Power Breakfast last week, Lasry said he thinks the stock market will get back to posting gains next year and that the economy will also continue to grow, though at a slower pace.
In the third quarter, Avenue Capital closed four of its former holdings while opening just one new position. The value of its 13F portfolio also declined to $1.77 billion as of September 30, down from $2.02 billion at the end of June. With minimal quarterly turnover, the fund's sector allocation remained largely unchanged, with real estate (38.04% weighting), finance (16.45%), and consumer discretionary (15.33%) stocks accounting for the bulk of its holdings.
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On the next page we'll look at five stocks that Marc Lasry and his team were selling during Q3 ahead of the chaotic final quarter of 2018.
Stocks Sold in Q3
Alleghany Corporation (NYSE:Y)
- Shares Sold During Q3: 70,805
- Q4 Return (through November 18): -6.95%
Avenue Capital's $40.71 million position in Alleghany Corporation (NYSE:Y) was the largest one unloaded by the fund in Q3 and may have been prompted by the stock's strong 13.5% gains during the quarter, which pushed it to all-time highs. Avenue Capital had owned the stock since 2011, when shares traded for less than half their current value.
Arcos Dorados Holding Inc (NYSE:ARCO)
- Shares Sold During Q3: 971,150
- Q4 Return (through November 18): +26.56%
Arcos Dorados Holding Inc (NYSE:ARCO) may be the only stock that's posted gains in Q4 (well, maybe there's two or three others), jumping by an impressive 26.56%. While Avenue Capital misses out on those gains, it was a shareholder of the McDonald’s Corporation (NYSE:MCD) franchisee throughout 2016 and 2017, when shares more than tripled in value. While ARCO was owned by just 18 hedge funds, McDonald's was the most popular restaurant stock among hedge funds.
Deutsche Bank Aktiengesellschaft (NYSE:DB)
- Shares Sold During Q3: 322,000
- Q4 Return (through November 18): -23.50%
Avenue Capital gets out of Deutsche Bank Aktiengesellschaft (NYSE:DB) ahead of a Q4 that has seen the finance sector slide into a bear market. While just nine of the hedge funds tracked by Insider Monkey were long Deutsche Bank on September 30, the amount they had invested in the stock doubled during Q3 to $1.42 billion.
Legg Mason, Inc. (NYSE:LM)
- Shares Sold During Q3: 187,411
- Q4 Return (through November 18): -18.76%
Avenue Capital also unloaded investment firm Legg Mason, Inc. (NYSE:LM) from its 13F portfolio during the third quarter, a period in which the asset manager paid $34 million to the SEC to resolve charges that it tried to bribe the Libyan government.
Tejon Ranch Company (NYSE:TRC)
- Shares Sold During Q3: 568,463
- Q4 Return (through November 18): -17.92%
Tejon Ranch Company (NYSE:TRC) is the only stock on this list in which Avenue Capital did not sell out of completely during Q3, instead unloading 30% of its holding. Tejon Ranch's farming revenue jumped by $3.2 million in Q3 following a record pistachio yield of 4 million pounds. That's a lot of pistachios. The company is also in the process of developing four master planned communities on its 270,000 acres of land in California, in addition to other commercial activities.