This article over at Barron’s makes several good points about the difficulties in cloning a given hedge fund’s holdings based strictly on 13F filings.  Problems include the 45-day delay in reporting the holdings and reported holdings being restricted to certain securities only.  Many international investments, short sells, and derivatives utilized by hedge funds are not included in 13F holdings for example.

Funds that have a high turnover are not well suited to cloning.

Due to these limitations in 13F filings, funds with a high rate of turnover are a poor choice for cloning. This was confirmed when backtesting results  in my “Active vs Stable Funds” article.  In it, the highest conviction picks from the 10 funds with the least amount of turnover easily outperformed the picks from the funds with the highest percentage of turnover.  Since 13F holdings are 45 days out from the actual reported date, you don’t get to take advantage of the hedge fund manager’s skill at timing investments.  In fact the fund may not even own the the stock by the time the 13F is filed.  By looking at funds with low turnover you minimize the reliance on timing and instead utilize the manager’s long term stock picking ability.

Which Funds Work Best?

Look for value managers and those that have the highest retention rate in their top holdings.  Warren Buffett’s Berkshire is the obvious choice.  Others that come to mind include George Soros and Bill Ackman’s Pershing Square Capital. Read more on “The Perils of Hedge Fund Cloning” »

Carl Icahn has just released a new Schedule 13D disclosing ownership of  8,689,089 shares in CMC, a decrease of 2,835,911 from their 12/31/2011 13F filing.  The transaction took place on April 17th.  Icahn’s current ownership of 8.689,089 shares  represents a 5.99% ownership stake in CMC.

According to the original 13D filed on 7/28/11, shares in CMC were purchased because:

“The Reporting Persons acquired the Shares in the belief that the Shares were undervalued at current levels. The Reporting Persons may have conversations with management of the Issuer to discuss its business and strategic alternatives for the Issuer.

The Reporting Persons may, from time to time and at any time: (i) acquire additional Shares and/or other equity, debt, notes, instruments or other securities (collectively, “Securities”) of the Issuer in the open market or otherwise; (ii) dispose of any or all of their Securities in the open market or otherwise; or (iii) engage in any hedging or similar transactions with respect to the Securities”

Commercial Metals Company “engages in recycling, manufacturing, fabricating, and distributing steel and metal products, and related materials and services in the United States and internationally”.
Read more on “Carl Icahn Reduces Position in Commercial Metals Company” »

Steven Cohen’s SAC Capital Advisors just released new Schedule 13G’s (here and here) disclosing ownership of additional shares in MedAssets and OCZ Technology.  SAC Capital now owns 5.5% of OCZ and 5.6% of MDAS.

Both MDAS and OCZ are in the technology sector.  OCZ Technology Group is in the data storage device industry and “engages in the design, manufacture, and distribution of Solid-State Drives (SSD) and computer components.”  MedAssets is in the healthcare information services sector and “provides technology enabled products and services for hospitals, health systems, and other non-acute healthcare providers in the United States.”

Per a newly released Schedule 13G, Glenview Capital Management now owns 9,945,383 shares in MWA representing a 6.35% stake in the company.  The transaction took place on April 2nd and is an increase of 3,315,645 shares over their reported holdings in MWA on 12/31/2012

Glenview Capital Management is a privately held hedge fund founded by Lawrence Robbins.

Mueller Water Products manafactures and markets water infrastructure, flow control, and piping component system products in the US and Canada.

Starboard Value just released an amended Schedule 13D related to its 5.3% stake in AOL.  In it Starboard expresses concerns that “the announced sale of the patents does little to address Starboard Value’s serious concerns with the Issuer’s poor operating performance and substantial losses in the Display business.”  Further Starboard calls for AOL to return all proceeds from the sale of patents to Microsoft back to shareholders.

The relevant contents of the letter follows:

Read more on “Starboard Value LP calls for AOL to return all patent sale proceeds to shareholders” »