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Elm Ridge Capital’s Top Stock Picks

Sieni Kimalainen

Dr. Ronald Eric Gutfleish, Elm Ridge Capital’s founder and Portfolio Manager, launched the fund back in 2000. Dr. Gutfleish graduated from Magna Cum Laude from Brown University in Applied Maths, and he holds a Ph.D. from the University of Berkeley. Prior to founding Elm Ridge Capital, he gained immense experience working on different positions at Omega Advisors, HPB Associates, Goldman Sachs Asset Management, and Sanford C. Bernstein & Co. As for his own hedge fund, he chose to employ a value investment strategy, based on purchasing assets with prices that are undervalued by the market for various reasons. The fund undergoes fundamental research, and choses analytical and technical tools and approaches in the process of picking the suitable companies to invest in. Apart from this, the fund uses other investment strategies such as buy and hold, options trading, short selling and arbitrage transactions.

As for the fund’s performance throughout the previous period, Elm Ridge Capital went through some harsh periods and abrupt ups and downs. In 2014, the return was -1.64%, followed by much worse drop of -30.2% in 2015. In 2016 the fund reversed course, gaining 23.95%. However, the next two years proved to be very bad, with the returns of -23.4% and -26% in 2017 and 2018 respectively. The fund seems to be getting back on the track, with a half-year return of 2.4% through June. However, with the annualized return of 1.27% Elm Ridge Capital appears to be struggling with the investors, and should probably reassess its strategy.

Ron Gutfleish

Insider Monkey’s mission is to identify promising (and also terrible) hedge fund stock pitches and share them with our subscribers. Our long strategy is based on the consensus picks of the 100 best performing hedge funds. This strategy was launched 5 years ago and generated a cumulative return of 115%. You can think of it as a mutual fund that returned 16.2% annually over the last 5 years, vs. 11.1% annual gain for the S&P 500 ETF (SPY). Basically we outperformed the S&P 500 Index by 5 percentage points annually by identifying the top stock picks of the best hedge fund managers (see the details here).

Our short strategy is based on shorting hedge fund hotels that are likely to experience large hedge fund sales during market weaknesses. We launched this strategy in February 2017. It’s been almost 3 years and the stock picks of this strategy lost a cumulative 27.8% vs. a cumulative gain of 39% for the S&P 500 ETF. This is an absolutely mind blowing performance. The annualized return of our short picks is -9.3%, vs. 12.7% annualized gain for the S&P 500 Index during the same period. The annual alpha of this strategy is 22 percentage points. Jim Chanos doesn’t generate this kind of performance. The best thing about this short strategy is that it provides an excellent hedge during market meltdowns. For example, in Q4 of 2018 when the S&P 500 Index lost nearly 14%, this strategy’s picks lost 25% protecting our premium subscribers from large losses.

Our newsletters are successful because we follow hedge fund managers like Dr. Ronald Eric Gutfleish to identify the best and worst hedge fund stock picks. In this article we are going to take a look at Elm Ridge Capital’s top stock picks. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. We noticed that none of Elm Ridge's top 5 stock picks are among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

At the fifth place in Elm Ridge Capital’s portfolio for Q3 2019 was MBIA Inc, (NYSE:MBI). The fund cut the position by 2% during the quarter, but nevertheless it moved up two places higher in the portfolio. At the same time, a total of 22 hedge funds tracked by Insider Monkey were bullish on the company, which is a drop of 3 hedge funds compared to Q2 2019. The company’s top shareholder was Fine Capital Partners, which reported holding shares worth $52.14 million. Other hedge funds interested in the company during Q3 2019 were Kahn Brothers, EJF Capital, Rubric Capital Management and Valueworks LLC.

United Rentals, Inc. (NYSE:URI) was Elm Ridge Capital’s fourth top stock pick for the third quarter this year. As Dr. Gutfleish decided to cut the position by 10% during this period, it moved two places lower since Q2 in the fund’s portfolio. There were 54 hedge funds investing in the company, which is a drop of 23% compared to the previous quarter. The largest stake in United Rentals, Inc. was held by Lyrical Asset Management, which reported holding $259.1 million worth of stock. Other investors bullish on the company included Citadel Investment Group, Glenview Capital, and Viking Global, as you can read in more detail here.

At the third place in Elm Ridge Capital’s portfolio for Q3 2019 was Canadian Natural Resources Limited (NYSE:CNQ). The company was boosted by 6% which brought it up from the sixth place in the fund’s portfolio. A total of 32 hedge funds bullish on the stock, a change of 33% compared to Q2. Polar Capital was the company’s largest shareholder for this period, holding a stake worth $73.9 million. Right behind it, Canadian Natural Resources Limited’s other top shareholders were GLG Partners, GMT Capital, and D E Shaw (see more detail here).

The second most valuable position in the fund’s latest 13F fillings was Assured Guaranty Ltd. (NYSE:AGO). The company was cut by 9% during Q3, but it moved up from the 3rd place in the fund’s portfolio. Apart from Elm Ridge Capital, there were 34 more hedge funds bullish on the stock at the end of Q3 2019, a change of -3% since the previous quarter. AQR Capital Management held the most valuable stake in the company, worth $176.4 million.  GLG Partners, Kahn Brothers, Taconic Capital, and Arrowstreet Capital were among other top shareholders bullish on the stock, as you can see here.

Finally, the Elm Ridge Capital’s top stock pick for Q3 2019 was  California Resources Corporation (NYSE:CRC). The fund seems to be fond of the company, which remained at the top in the fund’s portfolio since the previous two quarters, and it was boosted by 27% in Q3. At the same time, hedge funds seem to start showing more interest in the stock, since 20 hedge funds were investing in it in Q3, which is 8 hedge funds more compared to the previous quarter. The largest stake in California Resources Corporation was held by Cyrus Capital Partners, which reported holding $20.8 million worth of stock. Moreover, Encompass Capital Advisors, Masters Capital Management, and Citadel Investment Group were also bullish on the stock.

Disclosure: None. This article is originally published at Insider Monkey.