My favorite hedge fund event is the annual Sohn Conference in New York. This year’s event will be held on May 6th, so I decided to take a look at how last year’s picks fared and whether hedge fund managers were able to generate any outperformance with their recommendations. Last year Harvard University’s Patrick Luo released a paper about these types of investment conferences. Here is what he said:
“Using a novel dataset drawn from investment conferences from 2008 to 2013, I show that hedge funds take advantage of the publicity of these conferences to strategically release their book information to drive market demand. Specifically, hedge funds sell pitched stocks after the conferences to take profit and create room for better investment opportunities. However, the pitched stocks still perform better than non-pitched stocks in the funds’ portfolios afterwards. Hedge funds do not pitch obviously bad stocks because maintaining a good reputation helps them raise money. Pitched stocks earn a cumulative abnormal return of 20% over 18 months before the pitch and continue to outperform the benchmark by 7% over 9 months afterwards.”
Patrick Luo basically uncovered the fact that the stocks pitched at investment conferences aren’t necessarily the “best” stock picks of hedge funds as they start selling these stocks after the conferences to create room for their real best ideas. However, these stocks still outperformed the market by an average of 7 percentage points (14.2% average gain for the pitched stocks vs. 7.5% gain for the market) over the following 9 months.
I have been tracking hedge funds full-time for the last 8 years and trying to develop quantitative investment strategies that can outperform the market by large margins. In our monthly newsletter we recommend stock picks based on hedge fund presentations, investor letters, and activist filings. Our list of stock picks in our monthly newsletter returned 64.2% since its inception in March 2017 through April 2, 2019. S&P 500 ETF (NYSE:SPY) returned 25.5% during the same period. After attending last year’s Sohn Conference I decided that only one of the stocks pitched at the conference was attractive enough to be recommended to our subscribers. Five months after recommending this stock to our subscribers, we shared this recommendation with everyone else in a free sample issue of our monthly newsletter (you can still download it free of charge). I will reveal the name and performance of this stock at the end of this article. Let’s first take a look at the performance of other stocks pitched at last year’s Sohn Conference in New York.
D.R. Horton Inc (NYSE:DHI) was pitched by Long Pond Capital’s John Khoury (read his thesis). Khoury predicted that DHI will advance 63% as its earnings multiple expands from 8 to 13. DHI is flat since Khoury’s recommendation and underperformed the market by about 10 percentage points.
GrubHub Inc (NYSE:GRUB) was recommended by Half Sky Capital’s Li Ran. Li saw an upside potential of 60%. GRUB returned as much as 50% following Li’s recommendation but the stock crashed during Q4 and is currently down 28% since last year’s Sohn Conference.
[caption id="attachment_738176" align="aligncenter" width="750"] Li Ran of Half Sky Capital[/caption]
Jeff Gundlach recommended shorting Facebook Inc (NASDAQ:FB) as he expected a wave of data privacy scandals. “There is never just one cockroach in the kitchen,” Gundlach said. Facebook shares initially spiked but later declined by about 20% through the end of December. Overall, though, the stock is up 10% since the Sohn Conference. Gundlach also mentioned that he is long SPDR S&P Oil & Gas Exploration & Production ETF (NYSE:XOP). This ETF went up about 15% through the end of September, but is currently down 21% since the Sohn Conference.
Chamath Palihapitiya recommended Box Inc (NYSE:BOX) after saying the company “is a business that is incredibly cheap and undervalued with incredibly low churn and unbelievable margin of safety.” BOX shares gained 30% within a couple of months, however, the stock gave back those gains and is currently down 13% since the Sohn Conference.
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Disclosure: This article was originally published at Insider Monkey. The author has long positions in SPY and FB.