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Luminus Management’s Top Stock Picks

Sieni Kimalainen

Luminus Management was founded in 2002 by Paul Segal, who was the fund’s Management’s President and Portfolio Manager until 2011, when Jonathan Dan Barrett took over the positions. Jonathan Barrett graduated in Accounting from University of Witwatersrand. He started off working in real estate investment, and later he held a position of Director of Merger and Acquisitions Group at Salomon Smith Barney. In 2003 he joined Luminus Management, and apart from this fund, he is also currently a Managing Director of LS Power Equity Advisors. As for Luminus Management, the fund is interested in public companies operating in the domain of energy industries, such as drilling, engineering and construction, MLPs, refiners etc. The fund applies low net, long/short investment strategy, conducting thorough analyses and external and in-house research of the companies.

Throughout the last several years, the fund has been returning positively, having a highest peak in 2014, with a solid 22.7%. The following years brought a slight decrease, and the returns were 3.2% in 2015, 9.3% in 2016, 3.4% in 2017 and 3.0% in 2018. As for 2019, the fund seems to be struggling, delivering only 1.1% through June. However, with an annualized return of 11.9%, Luminus Management seems to be standing firmly in ground.

[caption id="attachment_728376" align="aligncenter" width="473"] Jonathan Barrett of Luminus Management[/caption]

Jonathan Barrett Luminus Management

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 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.

Our newsletters are successful because we follow hedge fund managers like Jonathan Dan Barrett and Paul Segal to identify the best and worst hedge fund stock picks. In this article we are going to take a look at Luminus Management’s top stock picks.

The fifth largest stock position in Luminus Management’s latest 13F filing was Cabot Oil & Gas Corporation (NYSE:COG). The fund boosted the company’s position by 6% in Q1, amassing 3.34% of its portfolio. Luminus Management was also the company’s second largest shareholder, holding 5,966,394 shares worth $15.7 million. Of other 31 hedge funds investing in Cabot Oil & Gas Corporation, the largest shareholder was Stelliam Investment Management, which reported holding $298.5 million worth of stock at the end of March. Compared to the previous period, the number of hedge funds investing in the company decreased by 3%. Deep Basin Capital, Arrowstreet Capital, and Citadel Investment Group were also among the company’s top shareholders, as you can see more details here. COG was pitched at this year's Ira Sohn Conference and we covered the hedge fund's investment thesis in this article.

The fourth most valuable position in Luminus Management’s portfolio for Q1 2019 was Ashland Global Holdings Inc (NYSE:ASH), despite the fund cutting the position by 24%. Luminus Management was also the company’s top shareholder, holding 2,371,136 shares worth $185.3 million. At the end of the first quarter, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, which is a decrease of 19% compared to Q4 2018. The company’s second largest shareholder was Empyrean Capital Partners, followed by Cruiser Capital Advisors, Millennium Management, and York Capital Management (read more detail here).

At the third place of Luminus Management’s top stock picks for Q1 2019 was Berry Global Group Inc (NYSE:BERY), even though the fund decided to cut the position by as much as 43%. A total of 40 hedge funds were bullish on the stock at the end of the first quarter this year, which is a change of -7% compared to Q4 2018. The company’s top shareholder was Eminence Capital, holding a stake worth $592.9 million. The following were Viking Global, Canyon Capital Advisors, Orbis Investment Management, and Sachem Head Capital, as you can read more about it here.

Boosted by 23% in the first quarter of 2019, FirstEnergy Corp. (NYSE:FE) raised from the 8th place to the second most valuable position in Luminus Management’s portfolio. Hedge funds seem to be interested in the company more and more lately, having 41 hedge funds investing in it in Q1 2019, which is a 5% increase compared to the previous quarter. The company’s top shareholder for this period was Zimmer partners, holding a stake worth $1228.4 million. Luminus Management was the third largest shareholder, holding 4,537,653 shares worth $188.8 million. Among other top shareholders of FirstEnergy Corp. were Renaissance Technologies and Fir Tree, as you can read in more detail here.

Finally, Luminus Management’s top stock pick for the Q1 2019 was Air Products & Chemicals, Inc. (NYSE:APD), a company producing and distributing various industrial gases and chemicals. Even though Jonathan Barrett decided to cut this position by 11% during Q1 2019, Luminus Management was the company’s top shareholder in Q1 2019. The fund held 1,202,889 company’s shares worth $229.7 million, amassing 5% of its portfolio. Other 38 hedge funds were bullish on the stock, which is a slight drop of 6% compared to the previous quarter. As the second largest shareholder was Empyrean Capital Partners, followed by Two Sigma Advisors, D E Saw and Freshford Capital management (read more detail here).

Disclosure: None.