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Hedge Fund Freshford Capital Management’s Top Stock Picks

Sieni Kimalainen

Freshford Capital Management is a New York based hedge fund, launched in 2008 by Michael Doheny, the fund’s principal owner and President. Mr. Doheny holds B.S. in Accounting and Economics from Boston College, and prior to funding Freshford Capital Management he gained experience working at Kensico Capital for eight years.

Freshford Capital management employs a fundamental value investment strategy. The strategy is based on long/short investments in public equity markets, with bottom-up and in-depth fundamental analysis.

Freshford Capital Management’s performance over the several last years was quite variable. In 2014 and 2015 the fund’s return was -0.9% and -4.3% respectively. The next year brought a strong comeback, when the return was 18.9%. In 2017 the fund delivered another strong return of 16.06%, while in 2018, it lost 5.71%. Year to date, the fund returned a positive 9.11% (as of June 2019), and generated an annualized return of 8.73% since its inception.

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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 in 2014 and generated a cumulative return of 115% in its first 5 years. You can think of it as a mutual fund that returned 16.2% annually during this period, 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 2.5 years and the stock picks of this strategy lost a cumulative 24.7% vs. a cumulative gain of 30.8% for the S&P 500 ETF. This is an absolutely mind blowing performance. The annualized return of our short picks is -11.2%, vs. 11.8% annualized gain for the S&P 500 Index during the same period. The annual alpha of this strategy is 23 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.

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Our newsletters are successful because we follow hedge fund managers like Michael Doheny to identify the best and worst hedge fund stock picks. In this article we are going to take a look at Freshford Capital Management’s top stock picks for Q2 2019.

At the fifth place among Freshford Capital Management’s most valuable positions was Air Products and Chemicals, Inc. (NYSE:APD). It moved down from the fourth position after being cut by 20%. Other investors are also slightly losing interest in the company, since 32 hedge funds tracked by Insider Monkey were bullish on the stock, which is a change of -6% since Q1. The company’s top shareholder for this period was Luminus Management, holding a stake worth $153.9 million. Freshford Capital Management was Air Products and Chemicals, Inc’s second top shareholder, holding 230,664 shares worth $52.2 million. Among other hedge funds allocating a large percentage of their portfolios to this stock were D E Shaw, Citadel Investment Group, and Adage Capital Management (read more detail here).

The fund’s forth top stock pick for Q2 2019 was Shutterfly, Inc. (NASDAQ:SFLY). Even though Mr Doheny decided to cut the position by 10%, it moved up from the fifth position in the fund’s portfolio. A total of 24 hedge funds held long positions in the stock, a change of -14% compared to the previous quarter. Sand Grove Capital Partners held the company’s largest stake worth $64.6 million. Right behind it was Freshford Capital Management, holding 1,077,568 shares worth $54.5 million. Among other top hedge funds bullish on the stock were Okumus Fund Management, Alpine Associates, and Ulysses Management.

The third largest stock position in the fund’s latest 13F fillings was Cheniere Energy Inc (NYSE:LNG). The company was boosted by 3%, remaining at the third position in the fund’s portfolio. There were 48 hedge funds were investing in the company, which is 15 shareholders less compared to the previous quarter. Icahn Capital LP held Cheniere Energy Inc’s largest stake worth $1.5 billion. Right behind it were Kensico Capital, Baupost Group, and Steadfast Capital Management, giving the stock large weights in their portfolios.

The fund’s second top stock pick for Q2 2019 was Perspecta Inc. (NYSE:PRSP). The position was cut by 7% during the quarter, but it still remained at the second place in the fund’s portfolio. A total of 40 hedge funds held long positions in the stock, a slight decrease of 5 hedge funds compared to the previous quarter. The company’s top shareholder was Maverick Capital, which reported holding shares worth $175.3 million. Freshford Capital Management was the company’s third top shareholder, holding 2,653,213 shares worth $62.1 million. Other hedge funds like Dorsal Capital Management, Sunriver Management, and Balyasny Asset Management were among the company’s top shareholders as well.

Finally, the most valuable position in Freshford Capital Management’s portfolio for Q2 2019 was Resideo Technologies, Inc. (NYSE:REZI), a new addition from the previous quarter. Mr Doheny boosted the position by 7%, hence remaining at the top in the fund’s portfolio. A total of 30 hedge funds tracked by Insider Monkey were bullish on the stock, a change of -21% since the previous quarter. The company’s top shareholder was Praesidium Investment Management Company holding a stake worth $101 million. Freshford Capital Management was right behind holding 3,297,859 of the company’s shares worth $72.3 million. Other hedge funds fond on the stock were Carlson Capital, Canyon Capital Advisors, and Governors Lane.

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