Hedge Fund Alpha the Best Stock Picks of the Best Hedge Funds

Hedge Fund Alpha The Best Stock Picks of The Best Hedge Funds

Q4 2017 Issue:23 February 26, 2018

Inside This Issue Executive Summary

2 Best Performing HFs Strategy We emailed this quarter’s stock picks on February 15th. Our Best th 3 Billionaire Hedge Fund Performing Hedge Funds Strategy gained 9.5% between November 16 th Dividend Strategy and February 15 , and outperformed SPY by 2.5 percentage points. This strategy also returned 75.6% since its inception in May 2014, beating 4 Enhanced SC HF Strategy SPY’s 57.5% gain during the same period. The new stock picks of this strategy are presented on page 2. 5 Most Popular Battleground Stocks’ Performance and New Our Billionaire Hedge Fund Dividend Strategy returned 1.5% between Picks November 16th and February 15th, and outperformed IEF by 5.3 7 In-depth Analysis of New Stock percentage points. This strategy outperformed IEF by 16.3 percentage Picks points since its inception in November 2015. The new stock picks of this strategy are presented on page 3. 27 23 Billionaire Fund Managers Twelve months ago we started using an additional indicator to 51 Most Popular Stocks Among potentially help us avoid high volatility stocks which may experience Hedge Funds large losses. If we had excluded stocks with at least 5% short interest in our small-cap strategy since day 1, our strategy would have returned 58 Most Concentrated Positions 134% through February 26th, 2017 instead of the 92.2% gain we Among Hedge Funds experienced in our small-cap strategy. Our enhanced small-cap strategy returned 8.8% over the last 4 quarters, vs. a loss of 8.5% for the 60 High Conviction Picks of Value Hedge Funds remaining small-cap stocks with high short interest.

60 Concentrated High We believe a portfolio of popular stocks with high short interest can be Conviction Hedge Fund Bets used to hedge our long exposure. See page 5 for the new list of these battleground stocks with high short interest. 65 Highlights From Hedge Fund Investor Letters Our Enhanced Small-cap Hedge Fund Strategy returned 5.1% between November 16th and February 15th and underperformed the S&P 500 Don’t pay hedge funds Index ETF (SPY) by 1.9 percentage points. This is the 10th time in 22 hefty fees when you can quarters this strategy underperformed the market. See page 4 for this buy the best stock picks strategy’s new picks. of best hedge fund managers at a fraction of what they charge 2 Hedge Fund Alpha

Best Performing Hedge Funds Strategy: New Picks This strategy invests equal dollar amounts in each of the 30 small and smid-cap stocks (between $1 billion and $10 billion in market cap) among the 100 best performing hedge funds in the previous quarter. It is a more diversified, less volatile version of our small-cap strategy. We ranked hedge funds based on the performance of their second quarter picks during the third quarter. The list below shows the 13 most popular small and smid-cap stocks among these top 100 hedge funds at the end of September. We excluded 17 stocks because they have high short interest.

We first started sharing the stock picks of this strategy in May 2014. Our Best Performing Hedge Funds Strategy returned 9.5% between November 16th and February 15th, and outperformed SPY by 2.5 percentage points. This strategy also returned 75.6% since its inception in May 2014, beating SPY’s 57.5% gain during the same period by 18 percentage points. Please keep in mind that small- cap stocks, in general, underperformed large-cap stocks since May 2014 which is why the performance of our Best Performing Hedge Funds Strategy is more impressive than it looks.

Here are this quarter’s stock picks: 3 Hedge Fund Alpha

Billionaire Hedge Fund Dividend Strategy

We launched our quarterly dividend newsletter and billionaire hedge fund dividend strategy on November 17, 2015. This is a purely quantitative strategy that picks 3 small-cap stocks based on the overall activity of ALL hedge funds we are tracking and 12 stocks based on the overall activity of ALL billionaire fund managers in our database. In our return calculations we use equal weights following each quarterly update (invest equal dollar amounts in each of our stock picks). We also assume that dividends are reinvested. The investment horizon of this strategy is 3-5 years and we believe it will outperform the 10-year Treasury bonds during this period. We use iShares 7-10 Year Treasury Bond ETF (IEF) as our benchmark. Our stock picks may underperform this ETF in any 12 month period but over the long-term we expect them to perform materially better than this ETF.

Our Billionaire Hedge Fund Dividend Strategy returned 1.5% between November 16th and February 15th, and outperformed IEF by 5.3 percentage points. This strategy outperformed IEF by 16.3 percentage points since its inception in November 2015. The first three stocks in our list are the 3 highest ranked dividend stock picks of our small-cap hedge fund strategy. These aren’t your typical dividend stocks. Hedge funds buy these stocks for their strong upside potential, not for their dividends. We should also warn you that they are also very volatile. That’s why their weight in our strategy is only 20%. These stocks lost an average of 29.8% through February 17th, 2015, but gained 64.1% during the following 24 months.

Here are this quarter’s dividend stock picks: 4 Hedge Fund Alpha

Enhanced Small-Cap Strategy: New Picks

Our small-cap strategy performs well only if hedge funds act independent of each other and arrive at the same conclusions. Our strategy won’t work if most hedge funds don’t do independent research and simply piggyback the ideas of well-known hedge fund managers such as David Einhorn or Bill Ackman. In the past five years our biggest losers were SunEdison (Einhorn’s idea that was imitated by more than 6 dozen hedge funds), Ackman’s JC Penney

and Platform Specialty Products, and Larry Robbins’ Community Health and Brookdale picks. Since these hedge funds are highly visible in the media and share their ideas via investment conferences or investor letters, it seems to us that some hedge funds are affected by the publicity and flock into these stocks without independently verifying the soundness of these ideas.

Our research so far identified an indicator that will help us sidestep these hyped-up stocks. Some hedge funds do extensive research on hyped-up stocks that are crowded by dozens of hedge funds, find flaws in their investment thesis and decide to short these stocks. If we had excluded stocks with at least 5% short interest in our small-cap strategy since day 1, our strategy would have returned 112.1% through February 16th, 2017 instead of the 74.2% gain we experienced. These stocks also returned 10.3% between February 17th 2017 and February 26th, 2018, bringing their cumulative gains to 134%. S&P 500 ETF (SPY) returned 120.3% during the same period.

We also backtested this new indicator using our 1999-2012 hedge fund holdings database. Our small-cap strategy's average monthly return increased to 1.50% (from 1.22%) when we excluded stocks with at least 5% short interest.

These are battleground stocks with divergent hedge fund views. Twelve months ago we started excluding these stocks from our portfolio. This decision proved to be very timely as our enhanced small-cap strategy returned 8.8% over the last 4 quarters, vs. a loss of 8.5% for the excluded small-cap stocks with high short interest.

This quarter we have 7 stocks that satisfied our criteria, five of these stocks are new recommendations. Our enhanced small-cap hedge fund strategy's 7 recommendations are below: 5 Hedge Fund Alpha

Most Popular Battleground Stocks’ Performance and New Picks

We published the first issue of our newsletter at the end of August 2012 and started sharing the 15 quarterly stock picks of our small-cap strategy. Our Small Cap Strategy gained 75.3% between September 4th, 2012 and February 15th of 2017. During the same time period S&P 500 index ETF (SPY) gained 82.7%. Our calculations also showed that in our recommendation list the stocks with greater than 5% open short interest performed noticeably worse than the rest of the stocks. These stocks gained only 41.6% between 4th, 2012 and February 15th 2017. These stocks also lost 8.5% between February 16th 2017 and February 15th, bringing their cumulative gains to 29.6%.

We are going to test the returns of these most popular high short interest stocks during the 1999-2016 period over the following few months and formulate a formal investment strategy. We have been avoiding long positions in these stocks over the last 12 months but, it may actually be a good idea to short these stocks to hedge our long exposure.

This quarter’s stock picks are presented below. Once again, we are providing this list for information purposes only: 6 Hedge Fund Alpha

How To Use This Hedge Fund Newsletter

1. You present a lot of strategies and lists in this newsletter. What is your “official” recommendation? Which strategy should we follow?

Our flagship strategy is the Best Performing Hedge Funds Strategy. Our premium members are free to do whatever they like but we suggest they buy the 7 stocks picked by our flagship strategy every quarter and sell the stocks that drop out of the list. This isn’t a diversified strategy though. If you are looking for more stability and excellent short-term performance, you can also buy stocks of top billionaire hedge funds or our small-cap strategy. Finally, if you are interested in an alternative for long-term bonds, our Billionaire Hedge Fund Dividend Strategy (see page 3) outperformed its long-term bond ETF benchmark by 10.9 percentage points since its inception 24 months ago.

2. I don’t have time to trade in and out of stocks every quarter and I want to In the final section of invest in only the best ideas. What should I do? this newsletter, we share excerpts from hedge Our stock picks are ranked in each strategy. Historically the stocks that are at the fund investor letters top of each list performed better than the rest of the stocks picked by each that shed light on their strategy. The downside of investing in only the top picks is that it isn’t diversified enough. Usually it isn’t a good idea to allocate a large chuck of your portfolio to a top stock picks. very small number of stocks. Your returns will be extremely volatile and may significantly underperform our average returns from time to time.

3. Investing is a hobby for me. I have a lot of time on my hands and would like to come up with great investment ideas by looking at what hedge funds are doing. What do you recommend?

We provide tons of information for subscribers who want to dig deeper and come up with additional promising stock picks. We present a lot of lists (and the historical returns of each list) at the end of this newsletter. You can also analyze the “best stock picks” of billionaire hedge fund managers. In the final section of this newsletter, we share excerpts from hedge fund investor letters that shed light on their top stock picks.

4. I am very concerned about a large correction in the market. I think stocks will decline at least 25% in the next few months.

We don’t think we can predict short-term moves in the market. Our strategy is 100% long like most other indices. If you think the market is due for a correction, we believe the best way to hedge is by shorting the battleground stocks that are identified on page 5. The benchmarks for the other strategies are S&P 500 ETF (SPY) and iShares 7-10 Year Treasury Bond ETF (IEF). You will be able to hedge your long exposure by shorting the appropriate ETFs. 7 Hedge Fund Alpha Analysis of Best Performing Hedge Funds’ Picks:

1. Peabody Energy Corporation (BTU) Peabody Energy (BTU) is a large coal producer, serving steel and power customers in over 25 countries. In 2017, more than half of its adjusted EBITDA came from either Australian thermal or Australian Met coal, much of which is exported to fast growing Asian economies. The smart money likes BTU due to its relatively strong balance sheet and strong free cash flow generation.

On the account of a slowdown in the Chinese economy, low U.S. natural gas prices caused by shale fracking, and BTU’s previous $7.6 billion debt load, the original iteration of Peabody went bankrupt in 2016. In April 2017, the present iteration of BTU emerged from bankruptcy with a more manageable net debt load of $1.1 billion and an estimated 2017 EBITDA of around $1.25 billion. Current Price: $41.43 Initial Price: $41.43 (February Due to China curtailing some of its coal production to improve its environment 15, 2018) and various supply bottlenecks, Asian coal prices have been stronger than Dividends Paid: $0 expected and Peabody’s quarterly results have outperformed expectations. No of Best Performing HFs: 11 Adjusted EBITDA for 2017 came in at $1.63 billion and BTU generated over $932 No of Bullish HFs: 36 million in free cash flow for the year. Using that free cash flow, management has No of Bullish HFs (previous reduced BTU’s net debt by around half to $449 million and the company quarter): 32 repurchased around $175 million of stock. Not surprisingly, BTU's shares have Short Interest: 4.0% of float soared from around $24 in the middle of last year to around $40 per share today. 13D Owners: Elliott, Discovery Capital Although many investors don’t think that Asian coal prices in the long run will Last Insider Buy: 1 million remain as strong as they were in 2017, bulls believe coal still has a role to play in shares @ $23 (June 1, 2017) the coming decades. Unlike the United States which benefits from cheap shale gas, many emerging economies such as India don’t have access to cleaner forms See the list and history of of energy and have no choice but to use coal to develop and power their hedge fund positions and economies. Also, although the U.S. is slowly decommissioning coal power plants, insider transactions the Trump administration has pledged to help the industry, both by loosening regulations and backing off on clean power initiatives.

While the easy money may have been made and coal is in long term secular decline, BTU could still outperform in the short and medium terms. If coal prices remain strong for the next few years, management could potentially use the excess cash flow to support/send BTU stock higher. 8 Hedge Fund Alpha Analysis of Best Performing Hedge Funds’ Picks:

2. RSP Permian Inc. (RSPP) RSPP (RSP Permian Inc) is a growth-oriented oil and gas producer in the Permian basin that has competitive production costs, with positive adjusted net income at sub-$50 oil prices. The smart money likes RSPP due to its asset quality, fast growth, and exposure to oil, which has trended higher since July of last year.

Whereas Saudi Arabia used to have an interest in keeping the price of oil low to bankrupt weak U.S. oil producers, the country now has an interest in keeping the price of oil relatively steady and buoyant. The kingdom is trying to IPO its crown jewel national oil producer, Saudi Aramco, for a trillion dollar valuation or more, and the IPO of Saudi Aramco would benefit from steady and robust oil prices. As a result of improving fundamentals and the Kingdom agreeing to oil production cuts Current Price: $35.56 along with Russia and other OPEC countries, WTI prices have risen from low $40’s Initial Price: $35.56 (February to low $60’s. With rumors that the IPO won’t happen until the latter half of 2018 15, 2018) or later, many bulls see continued strength in crude for at least that period or Dividends Paid: $0 more. No of Best Performing HFs: 10 No of Bullish HFs: 40 As a Permian producer with a solid balance sheet and low production costs, No of Bullish HFs (previous RSPP’s stock hasn’t fallen as sharply as many shale oil producers’ shares have. In quarter): 36 fact, RSPP’s stock is higher now than what it was for much of 2014 on the account Short Interest: 4.0% of float of the company's strong production growth and low costs. Due to its low 13D Owners: None production costs, RSPP has durability in periods of low commodity prices but has Last Insider Buy: 10,000 significant leverage to commodity price upside. shares @ $30 (Aug 29, 2017) In late 2016, RSPP made a big purchase, agreeing to buy Silver Hill Energy Partners See the list and history of and Silver Hill E&P II for $1.25 billion in cash and 31 million shares of stock. The hedge fund positions and purchase expanded RSPP's position in the Permian and management smartly insider transactions delevered by partly funding the purchase with a public offering.

Although crude prices could still go down due to the increasing adoption of renewables, current conditions in the industry look favorable. Roth Capital has a $50.50 price target due to more robust 2018 WTI crude oil forecasts. 9 Hedge Fund Alpha Analysis of Best Performing Hedge Funds’ Picks:

3. C&J Energy Services (CJ) C&J Energy Services, Inc.(CJ) is an oil service company that provides completion & production, well construction, and related support services for oil and gas industry primarily in North America. Oil production in the U.S. has rebounded in 2017 and demand for oil services has correspondingly strengthened. The smart money likes CJ due to its exposure to the sector and the fact that it trades at a low valuation relative to its potential.

In June 2014, the previous iteration of CJ took on more debt than it could handle by buying Nabors’ completion and production business. Due to the decline in crude prices beginning in late 2014, the previous iteration of CJ went bankrupt two years later. Current Price: $25.76 Initial Price: $25.76 (February Amidst the restructuring process, $1.4 billion of CJ’s debt was converted into 15, 2018) equity, and on January 6, 2017, C&J Energy emerged from Chapter 11, nearly debt Dividends Paid: $0 free and as a substantially stronger company. No of Best Performing HFs: 8 No of Bullish HFs: 36 Since its IPO, shares of CJ have vacillitated due to better-than-expected and No of Bullish HFs (previous worse-than-expected earnings reports as well as bullish and bearish sentiment quarter): 30 shifts. As an example, after having rallied from November 2017 to the late January Short Interest: 4.4% of float 2018 due to a solid Q3 earnings report and stronger oil prices, CJ shares retraced 13D Owners: None from $36 to below $24 due to a pull back in WTI prices, and general stock Last Insider Buy: 11,000 weakness among oil servicers. Amidst the volatility CJ expanded further by buying shares @ $4.5 (Nov 12, 2015) cementing service provider O-Tex for $132.5 million and 4.42 million shares of stock. See the list and history of hedge fund positions and Although CJ hasn't executed as well as expectations, the company does have a insider transactions solid balance sheet with no long term debt and $294 million of total liquidity as of the end of Q3. Demand for oil services will also likely strengthen if oil prices trend higher. In terms of oil prices, many investors believe the commodity’s fundamentals have improved from what they were a few years ago, and that it is in Saudi Arabia’s interest to keep oil prices buoyant in the near term for the IPO of Saudi Aramco, which could happen as soon as the second half of 2018. If oil prices go meaningfully higher, CJ prices and earnings results could likely follow. 10 Hedge Fund Alpha Analysis of Best Performing Hedge Funds’ Picks:

4. Alcoa Corporation (AA) Alcoa Corporation (AA) is a pure-play upstream industry leader in bauxite, alumina and aluminum products with highly competitive production costs. Hedge funds like Alcoa as an infrastructure and capital return play. If President Trump successfully enacts his proposed trillion dollar infrastructure program, demand for aluminum will increase, and Alcoa could benefit substantially.

Alcoa Corporation is a descendant of the old Alcoa, which was founded in 1886. The old Alcoa had both an upstream mining/smeltering unit and a downstream engineering and fabricating unit. For much of 2015 and 2016, shares of the old Alcoa fell due to aluminum oversupply from China and weak demand. To turn things around, old Alcoa's management separated the company into two, Alcoa Current Price: $47.57 Corporation, which contained old Alcoa's upstream business, and Arconic, which Initial Price: $42.21 contained the downstream segment. (November 15, 2017) Dividends Paid: $0 To many bulls, the spin-off helped because it deleveraged Alcoa, as Arconic took No of Best Performing HFs: 8 much of old Alcoa's debt. Due to Donald Trump winning the Presidency, many No of Bullish HFs: 37 investors piled into Alcoa Corporation in anticipation of Trump's proposed No of Bullish HFs (previous infrastructure plan. Shares of Alcoa have also rallied due to stronger aluminum quarter): 43 pricing, driven by strong demand and curtailed Chinese aluminum production. Short Interest: 4.1% of float Beginning January 2018, Alcoa shares trended lower after the company reported a 13D Owners: None disappointing fourth quarter. For the period, Alcoa earned an adjusted $1.04 per Last Insider Buy: NA share on sales of $3.17 billion, missing the consensus by $0.18 per share and $120 million. Sales grew 24.8% year-over-year and the company ended the quarter with See the list and history of net debt of $0.05 billion. For full year 2017, Alcoa reported adjusted EBITDA of hedge fund positions and $2.35 billion and $0.8 billion in free cash flow. For 2018, Alcoa expects adjusted insider transactions EBITDA of $2.6-$2.8 billion.

Despite the soft earnings report, analysts are bullish. Given its robust free cash flow generation (9% FCF yield at current prices) and low net debt, many investors believe Alcoa will return substantial capital back to shareholders in the coming years if aluminum prices remain strong. If the U.S. government enacts tariffs on aluminum which the Commerce Department recommended in February, the Trump infrastructure plan successfully passes, and Chinese aluminum production remains curtailed due to pollution concerns, the probability of strong aluminum prices is encouraging. 11 Hedge Fund Alpha Analysis of Best Performing Hedge Funds’ Picks:

5. US Foods Holding Corp (USFD) US Foods Holding Corp. (USFD) is a leading food distributor to restaurants with around $24 billion in annual sales. From 2007 to 2016, USFD was owned and run by PE firms KKR and CD&R. From 2013-2015, those firms tried to merge USFD with industry leader Sysco but the merger deal was ultimately nixed by the FTC due to concerns that the combined entity would have too much power over national chain restaurants.

As a result, USFD underwent an IPO in May 2016 and shares have rallied ever since due to strong quarterly results and investor optimism. In late November 2017, USFD's former private equity owners, KKR and CD&R, sold their remaining holdings of the company (~40 million shares), with USFD buying back 10 million of Current Price: $32.87 those shares at $28 a piece. Initial Price: $32.87 (February 15, 2018) On February 15, 2018, USFD reported strong Q4 results with earnings per share of Dividends Paid: $0 $0.44 on sales of $6 billion, beating the Street by $0.01 per share and $80 million. No of Best Performing HFs: 7 Revenue rose 5.6% year-over-year, total case volume inched up 1.9%, and No of Bullish HFs: 49 adjusted EBITDA increased 9.4% to $290 million. FY2018 outlook is solid with No of Bullish HFs (previous management guiding for total case volume growth of 1-2%, adjusted EBITDA quarter): 45 growth of 6-8%, and adjusted diluted EPS of $2.00-$2.10. In terms of its debt, Short Interest: 3.2% of float USFD’s net debt to adjusted EBITDA ratio shrank to 3.4x at the end of 2017, down 13D Owners: None from 3.8x at the end of the prior year. As USFD’s leverage ratio comes down (to 3x Last Insider Buy: NA and lower), bulls believe the probability of increased M&A or share buybacks rises. See the list and history of hedge fund positions and Although there are worries that Amazon will enter the food distribution industry insider transactions after it bought Whole Foods, bulls believe those concerns are misplaced. Due to the sector's qualities, bulls do not believe Amazon can use its existing infrastructure to gain a major competitive advantage. The e-commerce giant’s fulfillment centers and FedEx trucks, for example, can’t transport bulk food items as cost effectively as existing food distributors can. Amazon can’t really innovate on food distribution either.

Meanwhile the foodservice sector continues to grow, with volume rising around 2% annually and price increasing by around 2% as well. 12 Hedge Fund Alpha Analysis of Best Performing Hedge Funds’ Picks:

6. Builders FirstSource Inc (BLDR) Builders FirstSource (BLDR) is one of the largest distributors of building and lumber materials to home builders in the United States. Around 70% of the company’s sales are tied to single family housing starts and around 7% are tied to multi-family new construction. After bottoming during the Great Recession, demand for housing has rebounded as the economy has recovered. BLDR’s financial results have correspondingly improved and its stock price has trended higher.

Although the housing market is better than before, it is still nowhere near where it should be in the middle of the economic cycle. In 2016, for example, housing starts per capita came in at ~2.4, or around 40% below what it should be mid Current Price: $19.88 cycle. Due to the pent-up demand and strong economy, BLDR management Initial Price: $19.88 (February believes the housing market will return to its historical averages over the next 4-6 15, 2018) years, and BLDR's results will improve dramatically, to double 2016 EBITDA & cash Dividends Paid: $0 flow and allow the company to generate normalized EPS of between $2-$2.5. No of Best Performing HFs: 7 Management also hopes to generate $1 billion in cash over the next four to six No of Bullish HFs: 38 years. If that happens, BLDR’s stock could prove cheap versus existing levels. No of Bullish HFs (previous quarter): 41 In terms of cash flow, BLDR has used its existing cash generation to pay down Short Interest: 3.2% of float debt. In 2015, BLDR took on a lot of debt by buying peer Probuild for $1.6 billion. 13D Owners: None After several years of paying its balance, BLDR is close to its target leverage ratio Last Insider Buy: 800,000 of 2.5-3.5x EBITDA. During the Q3 conference call, management said they planned shares @ $16 (Sept 6, 2017) to reduce the company's leverage ratio to 4 times by the end of 2017 and that BLDR had reduced its net debt to adjusted EBITDA ratio TTM by 0.7 in the last four See the list and history of quarters. In the future, bulls believe BLDR could use its excess cash flow to make hedge fund positions and accretive acquisitions or to return capital back to shareholders, both of which insider transactions could benefit the stock.

For the third quarter, BLDR reported net sales of $1.9 billion, a 9.5% rise compared to the third quarter of 2016, excluding the impact of closed locations and including an estimated 6.9% benefit from commodity price inflation. Adjusted EPS came in at $0.39 per share while adjusted EBITDA grew $3.7 million to $122 million. 13 Hedge Fund Alpha Analysis of Best Performing Hedge Funds’ Picks:

7. Hyatt Hotels Corporation (H) Hyatt Hotels Corporation (H) is a $9 billion hospitality chain that owns, operates, franchises, and licenses high end hotels and resorts. Due to the strong economy, corporate demand for high end rooms has increased substantially while high end room supply hasn’t kept up. On the account of the two factors, Hyatt’s earnings have increased strongly and its stock has outperformed in recent quarters. Bulls see more upside given the strong economy, the company’s undervaluation versus peers, Hyatt’s major share buybacks, and management’s plan to make the hotel chain more ‘asset-light’.

In November 2017, Hyatt shares rose further after management announced an ‘asset-light’ strategy shift. Due to the perception that the market wasn't fairly Current Price: $79.75 valuing Hyatt's assets, CEO Mark Hoplamazian announced plans to sell $1.5 billion Initial Price: $79.75 (February of assets within the next three years and focus instead on Hyatt's fee-based 15, 2018) franchise and management segment, which has grown faster than the owned Dividends Paid: $0 business in recent quarters. Bulls believe management will use much of the No of Best Performing HFs: 6 money raised from the asset sales to fund capital returns to shareholders, which No of Bullish HFs: 34 could in turn narrow the discount Hyatt trades to some peers. No of Bullish HFs (previous quarter): 33 For its fourth quarter, Hyatt reported EPS of $0.23. Sales came in at $1.18 billion, Short Interest: 2.7% of float up 8.3% year-over-year. For fiscal year 2017, Hyatt repurchased $723 million 13D Owners: UDQ, Maroon, worth of its stock, and had $861 million remaining under its share repurchase Horton Trust authorization as of February 9, 2018. Fiscal 2018 outlook is encouraging as Last Insider Buy: 400 shares @ management expects net room units to grow by 6-6.5% and for RevPar to rise 1- $56 (Dec 29, 2016) 3%. The company also initiated a quarterly dividend of $0.15 per share. See the list and history of In addition to solid organic growth and big buybacks, Hyatt has some other factors hedge fund positions and going for it. Due to its premium market position, the company isn’t as exposed to insider transactions disruptive forces such as AirBNB as some of its competitors. Hyatt also benefits from the newly passed tax legislation. Due to the tax cuts, Hyatt’s corporate and wealthy customers have more spending power, which could further increase demand. Meanwhile Hyatt’s own effective tax rate will be lower, giving the company more cash flow to return to shareholders. 14 Hedge Fund Alpha Analysis of Best Performing Hedge Funds’ Picks:

8. Energen Corporation (EGN) Energen Corporation (EGN) is a $5 billion oil-focused exploration and production company with operations in the Permian Basin in west Texas and New Mexico. Due to its world-class assets and underperformance versus peers, EGN has become a target of the billion dollar activist fund Corvex Management, which has pushed EGN to sell itself. If Corvex wins or if oil prices trend consistently higher, bulls see meaningful upside. We share Corvex’s thesis below.

After accumulating a significant position, Corvex filed a 13D in May of 2017, noting that although EGN has ‘some of the most attractive leaseholds for oil and gas development in the Permian Basin’, the company’s operational performance ‘has fallen short of its peer companies, leading to underperformance both in Current Price: $52.13 terms of financial results and shareholder returns’. As a result, Corvex believes Initial Price: $52.13 (February EGN ‘needs to strongly consider what actions can be taken to enhance and 15, 2018) maximize shareholder value – including a review of the potential value delivered Dividends Paid: $0 to shareholders through a change of control transaction given the recent wave of No of Best Performing HFs: 5 acquisitions in the Permian Basin at per acre values well in excess of the [EGN’s] No of Bullish HFs: 22 current implied value’. No of Bullish HFs (previous quarter): 26 Indeed operationally, EGN has had lower recovery rates and higher drilling costs Short Interest: 4.1% of float than many comparable peers. Due to the operational difficulties, EGN traded for 13D Owners: Corvex around $25,000 per acre when comparable Permian-based peers traded for Last Insider Buy: 1000 shares $40,000 per acre. Seeing as how EGN and some comparable peers still trade for @ $58 (Dec 21, 2017) around the same levels, the valuation gap still exists. See the list and history of In January 2018, Corvex disclosed that it had a 9.9% stake in EGN and launched a hedge fund positions and formal fight against management by nominating four candidates to the company's insider transactions board. Energen responded by noting that its production grew an estimated 34% in 2017 and that it is committed to acting in the best interest of all shareholders.

If Corvex wins, many bulls believe EGN could indeed sell itself for a higher price. The Permain is very promising in terms of production costs and growth, and there would likely be many interested parties depending on the price. Corvex believes EGN’s stock price can increase about 60% if it trades at a similar per-acre valuation as Energen’s Permian-based peers. 15 Hedge Fund Alpha Analysis of Best Performing Hedge Funds’ Picks:

9. Cott Corporation (COT) Cott (COT) is a $2.2 billion home and office bottled water delivery and U.S. foodservice custom coffee roasting company. After many years of being mostly a pure-play private label beverage company, COT expanded into the home and office water and coffee delivery business in late 2014 by purchasing DSS for around $1.25 billion. In August 2016, COT acquired Eden Springs Europe B.V, a leading provider of water and coffee solutions in Europe for $576.3 million, and in the same month, COT closed on the purchase of S&D Coffee, Inc, a premium coffee roaster and provider of customized coffee, tea, and extract solutions, for $353.6 million. Due to the later two purchases in 2016, COT’s stock trended lower due to the concern that the company had taken too much debt.

Current Price: $15.60 COT shares bottomed in the beginning of 17' due to valuation reasons and rallied Initial Price: $15.60 (February after the company announced that it had agreed to sell its traditional private label 15, 2018) beverage manufacturing to Refresco for $1.25 billion. Management believes the Dividends Paid: $0 deal, which closed in January 2018, will enhance margins, improve top-line No of Best Performing HFs: 5 growth, and significantly reduce COT's debt to below 3.5x net debt/2017 adjusted No of Bullish HFs: 25 EBITDA. Going forward, management believes COT will have around $150 million No of Bullish HFs (previous of adjusted free cash flow for 2019, giving the stock a 19E FCF yield of 7%. quarter): 24 Short Interest: 0.8% of float Insider Monkey has been tracking COT since May 2017 and COT’s management 13D Owners: None hasn’t executed well. They have missed several earnings report expectations since Last Insider Buy: 46100 shares and the lack of execution may be why management decided to sell the traditional @ $11 (Mar 6, 2017) private label beverage business to Refresco for just $1.25 billion. Given that management previously guided for adjusted FCF of ~$225-$275 million for 2019 See the list and history of and are now targeting just $150 million after the sale, the adjusted FCF difference hedge fund positions and implies that the private label business generates around $75-$125 million in insider transactions adjusted FCF, which means that management sold the division for just ~10x-16x adjusted FCF. The valuation sold isn’t impressive given the low interest rate environment. Also activist John Levin didn’t launch an activist position, and instead sold three quarters of his position during Q4.

Going forward, COT’s Q4 earnings report and guidance will be critical in terms of the future direction of the stock. COT will likely benefit from the new U.S. tax legislation, and management could potentially use some of the $1.25 billion in cash to do accretive M&A deals. 16 Hedge Fund Alpha Analysis of Best Performing Hedge Funds’ Picks:

10. LPL Financial Holdings Inc (LPLA) LPL Financial Holdings Inc (LPLA) provides an integrated platform of brokerage and investment advisory services to independent financial advisors in the U.S. The company services around 15,000 financial advisors, and essentially offers those advisors the back-end infrastructure to operate independently if needed. The smart money is long LPLA due to the strong stock market and rising interest rates, both of which benefit LPLA. The company also benefits from tax reform and has substantial operating leverage inherent in its business model.

Due to solid execution and the rising stock market, LPLA's LTM EBITDA has risen from $426 million in 2013 to $616 million in 2017. Shares have increased from $35 per share to $63 per share as a result. In early 2016, LPLA shares fell sharply Current Price: $64.66 after the company reported a disappointing quarter and investors worried the Initial Price: $64.66 (February Labor Department's new fiduciary rule aimed at putting client interest first would 15, 2018) hurt demand for LPLA's services and potentially increase costs. Shares later Dividends Paid: $0 rebounded after LPLA’s earnings results consistently beat estimates. No of Best Performing HFs: 5 No of Bullish HFs: 29 In August 2017, LPLA expanded by buying the broker-dealer National Planning No of Bullish HFs (previous Holdings (NPH) for $325-$448 million from Jackson National. quarter): 31 Short Interest: 1.4% of float For its fourth quarter, LPLA reported earnings of $0.69 per share on sales of $1.12 13D Owners: None billion, beating the consensus by $0.13 per share and $20 million, respectively. Last Insider Buy: 4844 shares EPS increased 50% year-over-year while sales rose 10.9% year-over-year. Total @ $20 (Feb 29, 2016) brokerage and advisory assets increased 21% year-over-year to $615 billion and the company bought back $30 million worth of shares for the quarter. See the list and history of hedge fund positions and Bulls believe LPLA’s strong earnings growth will continue. Moving forward, LPLA insider transactions benefits from the rising stock market, which provides more business for financial advisors, and rising interest rates, which earns LPLA more money for the cash sweep balances it has. Specifically, LPLA estimates that its annual gross profit will rise by ~$30-$40 million for each 25 basis point hike in interest rates and by around $20 million annually for each 100 point rise in the S&P 500. Given the strong economy and the strong probability that the Fed might normalize rates in the future, both of those conditions currently look favorable for LPLA. 17 Hedge Fund Alpha Analysis of Best Performing Hedge Funds’ Picks:

11. Newmark Group Inc (NMRK) Newmark Group Inc (NMRK) is a $2.3 billion commercial real estate services business that offers both owners and occupiers a full suite of services including brokerage, mortgages, and consulting. Due to its extensive contacts, Newmark has relationships with many of the world's largest commercial property owners, real estate investors and developers, as well as Fortune 500 companies. The company was spun off from BGC Partners

Due to strong sector results, shares of major commercial brokerages such as CBRE Group and Jones Lang LaSalle rallied substantially in 2017. Partially to catch the wave of investor enthusiasm, BGC Partners bought mortgage provider Berkeley Point Capital in the middle of 2017 for $875 million and folded it in with Current Price: $14.90 Newmark's brokerage operations to make the division a ‘one stop shop’ for all Initial Price: $14.90 (February things commercial real estate. In October 2017, BGC Partners management filed 15, 2018) for an initial public offering for NMRK. Although BGC Partners anticipated to IPO Dividends Paid: $0 NMRK at between $19 and $22 per share, NMRK ultimately did its initial public No of Best Performing HFs: 5 offering at $14 per share in December 2017 due to softer than expected demand. No of Bullish HFs: 24 Some investors may have been daunted by NMRK's complex ownership. No of Bullish HFs (previous quarter): NA For its fourth quarter, NMRK reported adjusted EPS of $0.30 on sales of $460.6 Short Interest: 0.1% of float million, beating the Street by $0.05 per share and $33.6 million. Sales rose 18.8% 13D Owners: None for the quarter and 18.3% for the year while adjusted EBITDA rose 41.7% for the Last Insider Buy: None quarter and 82.6% for the year. 80% of Newmark's sales growth was organic and the company committed to instituting a quarterly dividend to common See the list and history of shareholders of 'up to 25 percent of our annualized adjusted earnings per share hedge fund positions and starting next quarter'. In terms of guidance, management expects 2018 post-tax insider transactions adjusted EPS of $1.40-$1.60, or a rise of 22-39% versus the previous year.

Analysts in general are bullish due to NMRK’s strong growth potential and the new tax legislation, which could potentially give the commercial real estate sector a lift. Management, meanwhile plans to keep their heads down, earn more money, and build the business. They believe that over time, 'people will compare Newmark to its peers and realized we are growing faster than our peers and give us a reasonable multiple against that'. 18 Hedge Fund Alpha Analysis of Best Performing Hedge Funds’ Picks:

12. Olin Corporation (OLN) Olin Corporation (OLN) is a leading vertically-integrated manufacturer and distributor of chlorine related chemical products and a leading U.S. manufacturer of ammunition. OLN’s main chemical products include chlorine, caustic soda, and epoxies, all of which have increased in price in recent years. The company's ammo division, Winchester Ammunition, brought in $681.2 million in sales for 2017, and accounted for around 11% of OLN’s total revenue for the time period.

In 2015, OLN made a transformative merger with Dow's Chlorine products division that has paid great dividends. In terms of benefits, management is one year ahead of schedule in unlocking synergies from the transaction. For 2018, management estimates OLN will meet or exceed the original target cost related synergy of $250 Current Price: $33.23 million and revenue related synergy of $100 million. In addition to unlocking Initial Price: $33.23 (February synergies, OLN’s financial performance has been strong due to robust demand for 15, 2018) chlorine, caustic soda, and epoxies. For the full year 2017, OLN realized of $944.1 Dividends Paid: $0 million in adjusted EBITDA, up 12% year-over-year. Due to firmer prices for the No of Best Performing HFs: 5 chemical products and higher demand for Winchester ammunition, 2018 could be No of Bullish HFs: 32 an even better year, as management expects the company to generate $1.25 No of Bullish HFs (previous billion +/- 5% in adjusted EBITDA, and around $440 million in free cash flow quarter): 29 before dividends. Management also expects to end the year with a net debt-to- Short Interest: 2.0% of float EBITDA leverage ratio of around 2.5x. 13D Owners: None Last Insider Buy: 6500 shares Due to the robust economy, the company believes there is room for more @ $32 (Feb 13, 2018) operational improvement. Management estimates that it could potentially earn even more in mid-cycle, with adjusted EBITDA of $1.5 billion+. Given OLN’s falling See the list and history of leverage and its strong cash flow, OLN could be a capital return story going hedge fund positions and forward. insider transactions Although OLN shares retraced beginning in late January due to the broader market sell off and OLN’s earnings report, analyst Eric Petrie of Citi doesn't believe the pullback is warranted. Petrie thinks that there might have been some confusion among investors concerning management's 2018 adjusted EBITDA guidance of $1.25 billion +/- 5%, which the analyst doesn't think factors in any potential incremental caustic soda price increases in North America beyond what was already largely realized in January. In short, Petrie thinks the guidance could be conservative and that there is upside left. Petrie has a $40 price target. 19 Hedge Fund Alpha Analysis of Best Performing Hedge Funds’ Picks:

13. Constellium N.V. (CSTM) Constellium N.V (CSTM) is a $1.7 billion Netherlands-based aluminum manufacturer that develops products for the aerospace, automotive, and packaging industries. In 2013, CSTM became a public company after it IPO’ed from the PE firm Apollo Global.

After initially rising due to increased market expectations, CSTM trended sharply lower from the middle of 2014 to 2016 due to several factors. First, CSTM experienced a furnace failure that hurt operational results in late 2014. Second, the company's product mix didn't meet the market’s elevated expectations. Third, CSTM management made a disastrous acquisition in 2015 by agreeing to buy peer Wise Metals for $1.4 billion, or for what turned out to be 17x 2015 EBITDA. Due to Current Price: $12.70 purchase, CSTM shares fell, a secondary offering to partially finance the deal was Initial Price: $12.70 (February out of the question, and the company was forced to take on substantial debt. As a 15, 2018) result, many investors avoided the stock. Dividends Paid: $0 No of Best Performing HFs: 5 Due to the poor stock performance, CSTM replaced its management team and No of Bullish HFs: 35 shares began trending higher in 2016. In October 2017, CSTM deleveraged No of Bullish HFs (previous substantially after it priced an equity offering of 25 million shares at $11 a piece. quarter): 36 As a result of the offering and strong earnings, CSTM deleveraged from 5.5x at the Short Interest: 1.0% of float start of 2017 to 4.8x at the end of the third quarter. 13D Owners: Bpifrance Participations In terms of its earnings, CSTM reported solid results for Q3, with revenue of 1.3 Last Insider Buy: NA billion euros (up 7% year-over-year) on the back of stronger aluminum prices. Adjusted EBITDA rose 15% year-over-year and the company realized net income See the list and history of of 21 million euros. On the account of the strong results, management increased hedge fund positions and adjusted EBITDA growth guidance for 2017 to around 13%. The company also insider transactions believes it is on track to realizing adjusted EBITDA of 500 million euros in 2020. If that happens, the company would likely have substantial free cash flow to do more deals or to return capital to shareholders at that time.

In August of 2017, Bloomberg reported that CSTM was reportedly 'weighing options after drawing takeover interest'. Some parties may have been interested in CSTM due to the price that Norsk Hydro paid to buy an aluminum peer. In terms of what an acquirer might offer, Credit Suisse believes CSTM could potentially sell for $16-$18 per share in an M&A deal. 20 Hedge Fund Alpha Analysis of Enhanced Small Cap Strategy’s Picks:

1. Tribune Media Company (TRCO) Tribune Media Company (NYSE: TRCO) is one of the largest local TV broadcasters in America, with 42 television stations in 33 markets, a minority stake in the TV Food Network, and a variety of real estate assets. Elite funds are long Tribune Media for the M&A spread. If Tribune’s deal to sell itself to fellow TV broadcaster Sinclair Broadcast Group (SBGI) successfully closes, TRCO shareholders will receive $35 in cash per share and 0.23 shares of SBGI, which at current prices would give TRCO an upside of ~$1 per share. In addition, the equity component offers additional opportunity to profit if management unlocks expected synergies.

In early 2016, Tribune Media management said that they would engage in a strategic review and unlock shareholder value. Since that time, TRCO has divested Current Price: $42.40 numerous assets, strengthened its balance sheet, returned substantial Initial Price: $42.40 (February shareholder capital, and on May 8, 2017, the company agreed to sell itself to 15, 2018) fellow broadcaster Sinclair Broadcast Group (SBGI). Dividends Paid: $0 No of Best Performing HFs: 1 Under the terms of the Sinclair deal, Tribune Media stockholders will receive $35 No of Bullish HFs: 39 in cash and 0.23 shares of Sinclair Class A common stock for each share of Tribune No of Bullish HFs (previous Class A common stock and Class B common stock they own. The transaction has quarter): 41 been unanimously approved by the boards of both companies. Short Interest: 3.8% of float 13D Owners: Sinclair If approved, the merger is expected to give more pricing power and reduce costs Broadcast Group to the combined entity. Management estimated the deal will add over 40% pro Last Insider Buy: NA forma 2016/2017 free cash flow per share in accretion for Sinclair, which if successfully realized might increase the value of the 0.23 shares of Sinclair stock. See the list and history of hedge fund positions and Although originally anticipated to close in the fourth quarter of 2017, the closing insider transactions of the Sinclair and TRCO deal has taken longer than anticipated due to regulatory reasons. While the FCC has moved to ease ownership restrictions that may have prevented the merger and Sinclair has agreed to sell some TV stations to placate antitrust concerns, the deal hasn't yet received the final green light from Washington. Meanwhile the FCC inspector general will investigate whether FCC chairman Ajit Pai may have been biased in favor of the merger deal. Judging by TRCO’s price action, it seems that the market believes the merger will still go through. 21 Hedge Fund Alpha Analysis of Enhanced Small Cap Strategy’s Picks:

2. Nuance Communications (NUAN) Nuance Communications, Inc. (NUAN) is a voice and natural language recognition tech company that operates through four segments: Healthcare, Mobile, Enterprise, and Imaging. The company has grown through acquisitions over time and is cheap relative to its potential. In 2013, billionaire activist Carl Icahn took a major stake in NUAN and pushed management to raise margins and consider selling itself. Due to management not executing as well as expected and no acceptable take-over offer being made, Carl Icahn left his position in May 2017. In the middle of 2017, an internet virus named NotPetya ransomware severely disrupted NUAN’s transcription services in its healthcare division and the resulting fallout hurt NUAN’s sales and stock. Current Price: $16.60 In mid December 2017, the fund Neuberger Berman went public by noting in a Initial Price: $16.18 (August letter that NUAN had 'lagged behind any measurable peer group or relevant 15, 2017) benchmark over the last 10 years' and that the stock 'trades at a lower price-to- Dividends Paid: $0 earnings multiple than any relevant peer'. Neuberger Berman pushed for a new No of Best Performing HFs: 4 CEO and got it, with NUAN’s present CEO, Paul Ricci, announcing that he would No of Bullish HFs: 39 retire by March 31 of 2018 and that NUAN would split off its automotive segment No of Bullish HFs (previous into its own division. quarter): 39 Short Interest: 2.0% of float In part due to a strong fourth quarter and robust first quarter guidance, NUAN 13D Owners: None shares bottomed in late 2017 and many investors looked forward to NUAN’s first Last Insider Buy: 7500 shares quarter. Market expectations for the first quarter may have been too high, @ $18 (Aug 17, 2015) however, as shares of NUAN have performed poorly after the Q1 report. While management succeeded in its plan to return to organic growth, NUAN’s Q1 See the list and history of margins weren’t great and management guided for slightly lower margins for hedge fund positions and fiscal 2018 than the market anticipated as it seems NUAN’s efficiency efforts insider transactions might not reach full fruition this year. NUAN has also retraced due to the broader market sell-off.

The good news is that NUAN will get a new CEO by March of this year, and the new team could potentially execute better. With a forward P/E of 13.5, NUAN is cheap and the stock could rally substantially if new management executes. Bulls like NUAN’s exposure to AI and analytics-powered solutions and note that there are rumors of a potential sale of NUAN's auto segment. 22 Hedge Fund Alpha Analysis of Enhanced Small Cap Strategy’s Picks:

3. Berry Global Group (BERY) Berry Global Group is a leading plastics packaging manufacturer. Hedge funds like the stock because the company is a serial acquirer that successfully integrates its acquisitions. As a result of savvy purchases, Berry Global generates substantial cash flow and has grown faster-than-expected.

In 2015, Berry Global purchased the specialty materials company Avintiv for $2.45 billion. Since that time, Berry management has successfully integrated the acquisition, and the company has realized better than expected synergies. During recent months, the company completed the purchase of Clopay Plastics from Griffon for $475 million, which management expects to unlock synergies of ~$20 million in two years. Current Price: $56.09 Initial Price: $25.91 For its first quarter, BERY reported adjusted earnings of $0.67 per share on sales (November 17, 2014) of $1.78 billion, beating profit estimates by $0.03 per share and missing the Dividends Paid: $0 revenue outlook by $10 million. Due to inflation, there has been some price No of Best Performing HFs: 3 increases in resin and other raw inputs, which have hurt Berry’s margins. No of Bullish HFs: 38 Management plans to pass on the cost increases as best as possible (based on No of Bullish HFs (previous contractual and non-contractual means) and to increase productivity. quarter): 44 Management also estimates that the new tax legislation will provide a ~$50 Short Interest: 1.1% of float million annual benefit on an adjusted free cash flow basis. 2018 outlook is for 13D Owners: None adjusted free cash flow of $630 million and CFFO of $1.007 billion. Last Insider Buy: None Beginning late January 2018, BERY shares have fallen in line with the broader See the list and history of market. The broader market has fallen due to inflation worries which investors hedge fund positions and fear might cause the Fed to raise interest rates faster than expected. If interest insider transactions rates rise, BERY would be affected in the future due to higher borrowing costs. Higher rates would negatively affect BERY’s buy-and-integrate strategy, which relies on the company taking on debt to finance its acquisitions. If the cost of debt is higher, the future benefits of BERY’s acquisitions and integrations will be lower.

On the account of its successful track record of purchases/integrations and its substantial free cash flow generation (Estimated 8.5% FCF yield for 18’), however, bulls still believe BERY has upside left. Over three quarters of BERY’s debt is fixed and the company’s leverage ratio is reasonable at 3.8x net debt/adjusted EBITDA. 23 Hedge Fund Alpha Analysis of Enhanced Small Cap Strategy’s Picks:

4. Builders FirstSource Inc (BLDR) This stock is also picked by our best performing hedge funds strategy.

Builders FirstSource (BLDR) is one of the largest distributors of building and lumber materials to home builders in the United States. Around 70% of the company’s sales are tied to single family housing starts and around 7% are tied to multi-family new construction. After bottoming during the Great Recession, demand for housing has rebounded as the economy has recovered.

For the third quarter, BLDR reported net sales of $1.9 billion, a 9.5% rise compared to the third quarter of 2016, excluding the impact of closed locations and including an estimated 6.9% benefit from commodity price inflation. Adjusted EPS came in at $0.39 per share while adjusted EBITDA grew $3.7 million to $122 million. 24 Hedge Fund Alpha Analysis of Enhanced Small Cap Strategy’s Picks:

5. The Madison Square Garden Company (MSG) The Madison Square Garden Company (MSG) is a sports and entertainment company that owns and operates iconic sports franchises such as the New York Knicks and New York Rangers as well as a broad portfolio of entertainment venues such as the Beacon Theater. The company was spun off from a regional sports TV network in 2015 and shares have rallied ever since. Given the quality of MSG’s assets, bullish investors such as Mario Gabelli of Gamco Investors see more upside ahead. We share Gabelli’s thesis below:

Gabelli’s is bullish on MSG for several reasons. First Gabelli notes that the stock is cheaper than it looks as MSG has $1.1 billion of net cash on its balance sheet. Second, Gabelli notes that MSG owns very valuable real estate, including the Current Price: $226.15 Hudson Yards development on the West Side of Manhattan, in addition to air Initial Price: $226.15 rights above Madison Square Garden. Gabelli believes management could unlock (February 15, 2018) the value of the company's assets with deal making and that MSG 'could be worth Dividends Paid: $0 $280 to $300 a share', giving the stock 20-30% upside from current levels. No of Best Performing HFs: 4 No of Bullish HFs: 37 Another bullish wildcard could be activists, who have asked MSG in the past to No of Bullish HFs (previous consider spinning off the company's sports teams, contemplate repurchasing quarter): 41 large quantities of stock, think about monetizing MSG air rights, and consider Short Interest: 1.8% of float selling a minority stake of the Knicks. Any of those events could cause the market 13D Owners: Charles Dolan to give more credit to MSG’s asset value. Although activists don’t have much sway Last Insider Buy: 15,954 given that Executive Chairman James Dolan is the controlling shareholder, Dolan shares @ $183 (Sep 12, 2016) has a history of deal making in the past. See the list and history of In addition to Gabelli’s thesis, bulls like MSG for its NBA exposure. NBA viewership hedge fund positions and has increased in recent years, and with cash-flush tech giants increasingly bidding insider transactions for live sports, NBA revenues could potentially increase faster than expectations in the coming years. Rising NBA revenues would translate into higher asset value for MSG’s New York Knicks, which could in turn give MSG stock a lift. For its second quarter, MSG reported solid results, with EPS of $7.96 on sales of $536.3 million. Sales rose 20% year-over-year while adjusted operating income rose 23% year- over-year. As a result of the new tax legislation effective January 1, 2018, MSG's federal tax rate is now 21%, down from the previous 35%. 25 Hedge Fund Alpha Analysis of Enhanced Small Cap Strategy’s Picks:

6. C&J Energy Services Inc (CJ) This stock is also picked by our best performing hedge funds strategy.

C&J Energy Services, Inc.(CJ) is an oil service company that provides completion & production, well construction, and related support services for oil and gas industry primarily in North America. Oil production in the U.S. has rebounded in 2017 and demand for oil services has correspondingly strengthened. The smart money likes CJ due to its exposure to the sector and the fact that it trades at a low valuation relative to its potential.

In June 2014, the previous iteration of CJ took on more debt than it could handle by buying Nabors’ completion and production business. Due to the decline in Current Price: $25.76 crude prices beginning in late 2014, the previous iteration of CJ went bankrupt Initial Price: $25.76 (February two years later. 15, 2018) Dividends Paid: $0 Amidst the restructuring process, $1.4 billion of CJ’s debt was converted into No of Best Performing HFs: 8 equity, and on January 6, 2017, C&J Energy emerged from Chapter 11, nearly debt No of Bullish HFs: 36 free and as a substantially stronger company. No of Bullish HFs (previous quarter): 30 Since its IPO, shares of CJ have vacillitated due to better-than-expected and Short Interest: 4.4% of float worse-than-expected earnings reports as well as bullish and bearish sentiment 13D Owners: None shifts. As an example, after having rallied from November 2017 to the late January Last Insider Buy: 11,000 2018 due to a solid Q3 earnings report and stronger oil prices, CJ shares retraced shares @ $4.5 (Nov 12, 2015) from $36 to below $24 due to a pull back in WTI prices, and general stock weakness among oil servicers. Amidst the volatility CJ expanded further by buying See the list and history of cementing service provider O-Tex for $132.5 million and 4.42 million shares of hedge fund positions and stock. insider transactions Although CJ hasn't executed as well as expectations, the company does have a solid balance sheet with no long term debt and $294 million of total liquidity as of the end of Q3. Demand for oil services will also likely strengthen if oil prices trend higher. In terms of oil prices, many investors believe the commodity’s fundamentals have improved from what they were a few years ago, and that it is in Saudi Arabia’s interest to keep oil prices buoyant in the near term for the IPO of Saudi Aramco, which could happen as soon as the second half of 2018. If oil prices go meaningfully higher, CJ prices and earnings results could likely follow. 26 Hedge Fund Alpha Analysis of Enhanced Small Cap Strategy’s Picks:

7. ILG Inc (ILG) ILG, Inc (ILG) is a leading timeshare operator, developer, and exchange network that allows owners of vacation ownership interests to easily exchange their occupancy rights for alternative accommodations at another resort and/or occupancy period. The company is the exclusive worldwide licensee for Sheraton, Westin, and Hyatt in vacation ownership, and offers a variety of vacation travel related benefits and financial services. To bulls, ILG is a potential M&A play as the activist fund FrontFour has campaigned for the company to sell itself and a competitor, Marriott Vacations, reportedly offered to buy ILG last year.

After spinning off from IAC in 2008, ILG expanded substantially by merging with Starwood's spun-off timeshare operator, Vistana Signature Experiences, in 2016. Current Price: $31.64 Shares trended higher in 2017 as investors became optimistic on the combination, Initial Price: $31.64 (February with bulls estimating the transaction to help ILG achieve ~$400 million in EBITDA 15, 2018) for 2018, which would justify a price of around $30 per share. Dividends Paid: $0 No of Best Performing HFs: 0 Shares also rallied after activist fund FrontFour Capital Group disclosed a 2% No of Bullish HFs: 36 position in May 2017 and the fund pushed for ILG to merge with peer Marriott No of Bullish HFs (previous Vacations. In response, ILG subsequently hired Moelis & Co to advise it, and in quarter): 36 October 2017, Bloomberg reported that Marriott Vacations had reportedly made Short Interest: 4.5% of float a takeover offer of ~$30 per share. 13D Owners: None Last Insider Buy: 30,000 Seeing as ILG shares trade for around $32, some in the market seem to believe shares @ $15 (Jun 3, 2016) Marriott Vacations might offer a higher price or that ILG will achieve more EBITDA than previously expected. Both could potentially occur. In terms of its analysis, See the list and history of FrontFour Capital Group noted that Marriott Vacations could pay $33-$39 in cash hedge fund positions and and stock per share and the transaction still be accretive to EPS. Given that the insider transactions economy is strong and recent tax reform could unlock more growth for timeshare operators, ILG earnings could surprise to the upside.

One purported reason a deal hasn’t gone through yet is CEO Craig Nash, who seems to want a high valuation for ILG and reportedly wants to play a role in the subsequent entity. Nevertheless, FrontFour has pressed its case in recent months, and the fund has directly and indirectly nominated four director candidates to ILG's board at the company’s upcoming annual meeting. If FrontFour wins and Marriott Vacations increases its bid, ILG could have further upside. 27 Hedge Fund Alpha

Best Stock Picks:

In the sixth issue of our monthly newsletter we analyzed Buffett’s historical 13F filings. Our research has shown that the best way to imitate Warren Buffett is by buying his top Warren Buffett - 10 stock picks. These 10 stocks outperformed the market by 41 basis points per month between 1999 and 2012. This wasn’t a particularly risky approach either. This strategy’s Berkshire Hathaway monthly alpha was around 36 basis points. Here are Buffett’s best stock picks: 28 Hedge Fund Alpha

Best Stock Picks:

In the third issue of our monthly mini newsletter we analyzed Cohen’s historical 13F filings. Our research has shown that the best way to imitate Steve Cohen is by buying his Steven Cohen - top 5 stock picks. These 5 stocks outperformed the market by 78 basis points per month between 2008 and 2012. This wasn’t a particularly risky approach either. This strategy’s Point72 Asset Man. monthly alpha was around 60 basis points. Here are Cohen’s best stock picks: 29 Hedge Fund Alpha

Best Stock Picks:

Performance/Risk Metrics JANA Strategy SPY Avg. No of Stocks 5.0 500 Average Monthly Return 1.51% 0.29% Monthly Std. Deviation 9.0% 5.5% Barry Rosenstein - Best Month 24.8% 10.9% Worst Month -33.0% -16.5% Jana Partners Maximum Drawdown -59.2% -46.3% Sharpe Ratio 0.62 0.16 2008 Return -50.3% -36.8% 2009 Return 82.4% 26.3% 2010 Return 34.0% 15.1% 2011 Return 11.9% 1.9% 2012 Return 40.9% 16.0%

In the thirteenth issue of our monthly mini newsletter we analyzed Barry Rosenstein’s historical 13F filings. Our research has shown that the best way to imitate Rosenstein is by buying his top 5 small and mid-cap stock picks. These 5 stocks outperformed the market by 120 basis points per month between 2003 and 2012. This wasn’t a particularly risky approach either. This strategy’s monthly alpha was around 88 basis points. Here are Rosenstein’s best stock picks: 30 Hedge Fund Alpha

Best Stock Picks:

Performance/Risk Metrics J.Griffin Strategy SPY Avg. No of Stocks 5.0 500 Average Monthly Return 1.13% 0.29% Monthly Std. Deviation 7.1% 5.5% Best Month 20.1% 10.9% John Griffin - Worst Month -15.9% -16.5% Blue Ridge Capital Maximum Drawdown -38.4% -46.3% Sharpe Ratio 0.57 0.16 2008 Return -30.4% -36.8% 2009 Return 52.9% 26.3% 2010 Return 29.8% 15.1% 2011 Return 18.9% 1.9% 2012 Return 2.9% 16.0%

In the second issue of our monthly mini newsletter we analyzed John Griffin’s historical 13F filings. Our analysis shows that Griffin’s best equity plays are the five largest positions among his small and smid-cap stocks. An equal weighted portfolio of these five stocks outperformed the market by 84 basis points per month and generated a monthly alpha of 72 basis points between 2008 and 2012. These results fit our theory that hedge funds can identify a few winners in smaller cap stocks but they aren’t great large-cap investors. Here are Griffin’s best stock picks: 31 Hedge Fund Alpha

Best Stock Picks:

In the third issue of our monthly mini newsletter we analyzed Mandel’s historical 13F filings. Our research has shown that the best way to imitate Stephen Mandel is by buying Stephen Mandel - his top 10 small and smid cap stock picks. These 10 stocks outperformed the market by 170 basis points per month between 2008 and 2012. This wasn’t a particularly risky Lone Pine Capital approach either. This strategy’s monthly alpha was around 119 basis points. Here are Mandel’s best stock picks: 32 Hedge Fund Alpha

Best Stock Picks:

In the tenth issue of our monthly mini newsletter we analyzed Ray Dalio’s historical 13F filings. Our research has shown that the best way to imitate Ray Dalio is by buying his top 5 small cap stock picks. These 5 stocks outperformed the market by 179 basis points per month between 2008 and 2012. This was a risky strategy Ray Dalio - though. Its monthly alpha was around 82 basis points. Here are Dalio’s best stock picks: Bridgewater Associates 33 Hedge Fund Alpha

Best Stock Picks:

In the tenth issue of our monthly mini newsletter we analyzed Bill Ackman’s historical 13F filings. Our research has shown that the best way to imitate Bill Ackman is by buying his mid and large cap stock picks. These stocks outperformed the market by 63 basis points per month between 2008 and 2012. Its monthly alpha Bill Ackman- was around 35 basis points. Ackman has only a few stocks in his portfolio. That’s why our analysis suffers from the small sample size problem. We will be tracking his Pershing Square performance and update our results in the future. Here are Ackman’s best stock picks: 34 Hedge Fund Alpha

Best Stock Picks:

In the seventh issue of our monthly mini newsletter we analyzed Singer’s historical 13F filings. Our research has shown that the best way to imitate Paul Singer is by buying his Paul Singer - micro cap stock picks (market cap < $1 billion). These stocks outperformed the market by 182 basis points per month between 2008 and 2012. This wasn’t an extremely risky Elliott Management approach either. This strategy’s monthly alpha was around 124 basis points. Here are Paul Singer’s best stock picks: 35 Hedge Fund Alpha

Best Stock Picks:

Performance/Risk Metrics Peltz Strategy SPY Avg. No of Stocks 4.2 500 Average Monthly Return 1.09% 0.29% Monthly Std. Deviation 5.4% 5.5% Nelson Peltz - Best Month 17.5% 10.9% Worst Month -13.2% -16.5% Trian Partners Maximum Drawdown -29.8% -46.3% Sharpe Ratio 0.72 0.16 2008 Return -18.3% -36.8% 2009 Return 28.5% 26.3% 2010 Return 29.2% 15.1% 2011 Return 7.2% 1.9% 2012 Return 21.4% 16.0%

In the fourteenth issue of our monthly mini newsletter we analyzed Nelson Peltz’s historical 13F filings. Our research has shown that the best way to imitate Peltz is by buying his large and mid-cap stock picks. These stocks outperformed the market by 58 basis points per month between 2006 and 2012. This wasn’t a particularly risky approach either. This strategy’s monthly alpha was around 60 basis points. Here are Peltz’s best stock picks: 36 Hedge Fund Alpha Best Stock Picks:

Performance/Risk Metrics Baupost Strategy SPY Avg. No of Stocks 14.8 500 Average Monthly Return 2.4% 0.7% Monthly Std. Deviation 18.4% 4.6% Best Month 171.0% 10.9% Worst Month -25.4% -16.8% Seth Klarman - Maximum Drawdown -42.9% -48.5% Sharpe Ratio 0.52 0.52 Baupost 2008 Return -31.2% -37.0% 2009 Return 65.2% 26.5% 2010 Return 78.3% 15.1% 2011 Return -9.5% 2.1% 2012 Return -14.3% 16.0% 2013 Return 7.0% 32.4% 2014 Return 137.9% 13.7% 2015 Return -6.6% 1.4% 2016 Return 23.9% 12.0% Cumulative Return 362.6% 85.5%

In the 4th and 47th issues of our monthly mini newsletter we analyzed Klarman’s historical 13F filings. Our research has shown that the best way to imitate Seth Klarman is by buying his micro cap stock picks (market caps less than $1 billion). These stocks outperformed the market by 160 basis points per month between 1999 and 2016. Please note that the stocks we shared in this section in real time between 2014 and 2016 outperformed the market by more than 100 percentage points. Here are Klarman’s best stock picks: 37 Hedge Fund Alpha

Best Stock Picks:

In the seventh issue of our monthly mini newsletter we analyzed Cooperman’s historical 13F filings. Our research has shown that the best way to imitate Leon Cooperman is by Leon Cooperman - buying his top five small and micro cap stock picks (market caps less than $5 billion). These stocks outperformed the market by 107 basis points per month between 2008 and Omega Advisors 2012. This is a little bit risky investment approach though. This strategy’s monthly alpha was 69 basis points during the same period. Here are Cooperman’s best stock picks: 38 Hedge Fund Alpha

Best Stock Picks:

In the eleventh issue of our monthly newsletter we Ken Griffin’s historical 13F filings. Our research has shown that the best way to imitate Ken Griffin is by buying his top five micro Ken Griffin - cap stock picks (market caps less than $1 billion). These stocks outperformed the market by 120 basis points per month between 2008 and 2012. This is a little bit risky investment Citadel Investment Gr approach though. This strategy’s monthly alpha was 66 basis points during the same period. Here are Griffin’s best stock picks: 39 Hedge Fund Alpha

Best Stock Picks:

In the eighth issue of our monthly mini newsletter we analyzed Julian Robertson’s historical 13F filings. Our research has shown that the best way to imitate Julian Robertson is by buying his top 5 small and smid cap stock picks (market caps between $1 Julian Robertson - billion and $10 billion). These stocks outperformed the market by 106 basis points per month between 2009 and 2012. This strategy’s monthly alpha was only 41 basis points. Tiger Management Here are Julian Robertson’s best stock picks: 40 Hedge Fund Alpha

Best Stock Picks: Performance/Risk Metrics Glenview Strategy SPY Avg. No of Stocks 4.6 500 Average Monthly Return 2.6% 0.6% Monthly Std. Deviation 15.0% 4.8% Best Month 68.9% 10.9% Worst Month -39.0% -16.8% Larry Robbins - Maximum Drawdown -64.3% -48.5% Sharpe Ratio 0.69 0.44 Glenview Capital 2008 Return -57.0% -37.0% 2009 Return 266.2% 26.5% 2010 Return 1.2% 15.1% 2011 Return -36.2% 2.1% 2012 Return 20.7% 16.0% 2013 Return 64.0% 32.4% 2014 Return 77.0% 4.7% 2015 Return 51.1% -5.0% 2016 Return -18.9% 12.0% Cumulative Return 337.1% 60.1%

In the 9th and 45th issues of our monthly newsletter we analyzed Larry Robbins’ historical 13F filings. Our research has shown that the best way to imitate Larry Robbins is by buying his micro cap stock picks (market caps less than $1 billion). An equal weighted portfolio of these stocks outperformed the market by about 174 basis points per month between 2002 and 2016. This strategy’s monthly alpha was around 114 basis points. Please note that we have been sharing the stock picks of this strategy in real time since May 2014. 41 Hedge Fund Alpha

Best Stock Picks:

In the ninth issue of our monthly mini newsletter we analyzed Renaissance Technologies’ historical 13F filings. Our research has indicated that the best way to imitate RenTech is by buying its top 5 positions. We think Renaissance's top 5 stocks in their 13F portfolio Jim Simons - can outperform the market by an average of 5 to 10 percentage points per year. These stocks outperformed the market by about 88 basis points per month between 2008 and Renaissance Tech 2012. This strategy’s monthly alpha was around 103 basis points. Here are RenTech’s best stock picks: 42 Hedge Fund Alpha

Best Stock Picks:

Performance/Risk Metrics Dinan Strategy SPY Avg. No of Stocks 16.2 500 Average Monthly Return 1.7% 0.3% Monthly Std. Deviation 9.9% 5.5% Jamie Dinan - Best Month 37.6% 10.9% Worst Month -21.7% -16.5% York Capital Man. Maximum Drawdown -45.6% -46.3% Sharpe Ratio 0.64 0.16 2008 Return -30.0% -36.8% 2009 Return 102.6% 26.3% 2010 Return 21.4% 15.1% 2011 Return -4.8% 1.9% 2012 Return 16.0% 25.3%

In the twelfth issue of our monthly mini newsletter we analyzed Jamie Dinan’s historical 13F filings. Our research has shown that the best way to imitate Dinan is by buying his small-cap stock picks using the weights in the “value” column. These stocks outperformed the market by 138 basis points per month between 1999 and 2012. This wasn’t a particularly risky approach either. This strategy’s monthly alpha was around 77 basis points between 2008 and 2012. Here are Dinan’s best stock picks: 43 Hedge Fund Alpha

Best Stock Picks:

In the fifth issue of our monthly mini newsletter we analyzed Soros’ historical 13F filings. Our research has shown that the best way to imitate George Soros is by buying his top 10 George Soros - micro cap stock picks. These stocks outperformed the market by 81 basis points per month between 1999 and 2012. This is a risky investment approach though. This Soros Fund Man. strategy’s monthly alpha was only 49 basis points. Here are Soros’ best stock picks: 44 Hedge Fund Alpha

Micro Tepper Strategy:

In the fifth issue of our monthly mini newsletter we analyzed Tepper’s historical 13F filings. Our research has shown that the best way to imitate David Tepper is by buying his small and micro cap stock picks. We have already turned this into our “Micro Tepper” strategy. We have been sharing the stock picks of this strategy since November 17th, 2013. The strategy lost more than 13% between November 2013 and May 2017 and underperformed S&P 500 ETF (SPY)’s nearly 41% gain during the same period. We will David Tepper- update our analysis over the next few months. Here are the small and micro-cap stock picks of David Tepper: Appaloosa Man. 45 Hedge Fund Alpha Best Stock Picks:

Performance/Risk Metrics Einhorn Strategy SPY Avg. No of Stocks 13.1 500 Average Monthly Return 1.35% 0.29% Monthly Std. Deviation 8.5% 5.5% Best Month 21.3% 10.9% Worst Month -31.7% -16.5% David Einhorn- Maximum Drawdown -55.4% -46.3% Sharpe Ratio 0.58 0.16 Greenlight Capital 2008 Return -30.4% -36.8% 2009 Return 64.5% 26.3% 2010 Return 7.5% 15.1% 2011 Return 4.5% 1.9% 2012 Return 39.0% 16.0%

In the first issue of our monthly mini newsletter we analyzed Einhorn’s historical 13F filings. Our research has shown that the best way to imitate David Einhorn is by buying his small cap stock picks. These stocks outperformed the market by 106 basis points per month between 2008 and 2012. This is a little bit risky investment approach though. This strategy’s monthly alpha was 66 basis points. Here are Einhorn’s best stock picks: 46 Hedge Fund Alpha

Best Stock Picks:

In the fourth issue of our monthly mini newsletter we analyzed Loeb’s historical 13F filings. Our research has shown that the best way to imitate Dan Loeb is by buying his small cap stock picks. These stocks outperformed the market by 111 basis points per Dan Loeb - month between 1999 and 2012. Loeb’s small-cap picks performed terribly in 2008 though. This strategy’s monthly alpha was 56 basis points during the same period. If we Third Point exclude his 2008 returns, his monthly alpha increases to 112 basis points. Here are Loeb’s best stock picks: 47 Hedge Fund Alpha

Best Stock Picks:

In the sixth issue of our monthly mini newsletter we analyzed Coleman’s historical 13F filings. Our research has shown that the best way to imitate Chase Coleman is by buying Chase Coleman - his mid and large cap stock picks. These stocks outperformed the market by 54 basis points per month between 1999 and 2012. This strategy’s monthly alpha was 55 basis Tiger Global points during the same period. Here are Coleman’s best stock picks: 48 Hedge Fund Alpha

Best Stock Picks:

Performance/Risk Metrics Viking Strategy SPY Avg. No of Stocks 5.0 500 Average Monthly Return 1.64% 0.29% Monthly Std. Deviation 7.1% 5.5% Andreas Halvorsen - Best Month 25.2% 10.9% Worst Month -11.8% -16.5% Viking Global Maximum Drawdown -27.0% -46.3% Sharpe Ratio 0.86 0.16 2008 Return 11.0% -36.8% 2009 Return 25.7% 26.3% 2010 Return 17.9% 15.1% 2011 Return 7.3% 1.9% 2012 Return 30.7% 16.0%

In the eighteenth issue of our monthly mini newsletter we analyzed Andreas Halvorsen’s historical 13F filings. Our research has shown that the best way to imitate Halvorsen is by buying his top 5 smid and mid-cap stock picks (between $5 billion and $20 billion in market cap) using the weights in the “value” column. These stocks outperformed the market by 100 basis points per month between 2000 and 2012. This wasn’t a particularly risky approach either. This strategy’s monthly alpha was around 139 basis points between 2008 and 2012. Here are Halvorsen’s best stock picks: 49 Hedge Fund Alpha

Best Stock Picks: Performance/Risk Metrics ValueAct Strategy SPY Avg. No of Stocks 5.1 500 Average Monthly Return 1.9% 0.7% Monthly Std. Deviation 6.8% 4.6% Best Month 18.5% 10.9% Worst Month -18.0% -16.8% Jeff Ubben - Maximum Drawdown -34.4% -48.5% ValueAct Capital Sharpe Ratio 1.05 0.52 2008 Return -19.7% -37.0% 2009 Return 66.5% 26.5% 2010 Return 71.2% 15.1% 2011 Return 0.3% 2.1% 2012 Return 33.1% 16.0% 2013 Return 44.4% 32.4% 2014 Return 24.3% 13.7% 2015 Return -12.9% 1.4% 2016 Return 21.9% 12.0% Cumulative Return 481.6% 85.5%

In the 46th issue of our monthly newsletter we analyzed Jeff Ubben’s historical 13F filings. Our research has shown that the best way to imitate Ubben is by buying his small-cap stock picks (between $1 billion and $5 billion in market cap) using the weights in the “value” column. These stocks outperformed the market by 68 basis points per month between 2002 and 2016. This wasn’t a particularly risky approach either. This strategy’s monthly alpha was around 109 basis points per month between 2008 and 2016. Here are Ubben’s best stock picks: 47 Hedge Fund Alpha

Best Stock Picks: Performance/Risk Metrics Icahn Strategy SPY Avg. No of Stocks 2.5 500 Average Monthly Return 0.1% -0.4% Monthly Std. Deviation 8.3% 4.5% Best Month 21.9% 8.4% Worst Month -21.3% -16.8% Carl Icahn- Maximum Drawdown -63.7% -49.8% Icahn Capital Sharpe Ratio 0.02 (0.29) 2008 Return -44.7% -37.0% 2009 Return -16.1% -10.0% 2010 Return -21.9% -4.6% 2011 Return 28.4% -7.2% 2012 Return 6.7% 2.6% 2013 Return 5.1% 6.5% 2014 Return 1.7% 13.7% 2015 Return 50.7% 1.4% 2016 Return 2.2% 12.0% Cumulative Return -18.2% -29.3%

In the July 2017 issue of our monthly newsletter we analyzed Carl Icahn’s historical 13F filings. Our research has shown that the best way to imitate Icahn is by buying his large-cap stock picks (at least $20 billion in market cap) using equal weights. These stocks outperformed the market by 83 basis points per month between 2000 and 2016. Here are Icahn’s best stock picks: 51 Hedge Fund Alpha

10 Most Popular Stocks Among Hedge Funds 25 Most Popular Stocks There are a lot of people who think hedge fund filings are delayed and hedge 11 Citigroup (C) funds can't even beat the market. Our research has shown that it is possible to outperform the market by a large margin if you know where to look. 12 Apple Inc. (AAPL) Q1 2011 One area media and other investors pay a ton of attention to is the list of most 13 Comcast (CMCSA) popular stocks among hedge funds. We already know that imitating the top 30 14 JP Morgan (JPM) most popular among hedge funds outperforms the market by slightly less than 2 percentage points per year. This isn’t a huge outperformance but it shows that 15 NXP Semiconductors (NXPI) hedge funds have a tiny edge in this space. The most popular stock among hedge funds was Facebook at the end of the first quarter. Things haven’t changed much 16 Charter Communications during the second and third quarters. Let’s take a look: (CHTR) 1. Facebook (FB) : 164 hedge funds 17 PayPal (PYPL) 2. Microsoft (MSFT) : 142 hedge funds 18 Wells Fargo (WFC) 3. Amazon (AMZN): 136 hedge funds 19 Broadcom Ltd (AVGO) 4. Bank of America (BAC): 131 hedge funds 20 Mastercard (MA) 5. Alphabet Inc. (GOOGL): 129 hedge funds. 21 DowDuPont (DWDP) 6. Alphabet Inc. (GOOG): 124 hedge funds 22 Micron Technology (MU) 7. Visa (V) : 120 hedge funds. 23 Delta Airlines (DAL) 8. Time Warner (TWX): 116 hedge funds 24 Priceline (PCLN) 9. Altaba Inc (AABA): 115 hedge funds 25 Berkshire Hathaway (BRK- B) 10. Alibaba (BABA): 115 hedge funds

Don’t pay hedge funds hefty fees when you can buy the best stock picks of best hedge fund managers at a fraction of what they charge 52 Hedge Fund Alpha

30 Most Popular Large-Cap ($20+ Billion) Stocks:

Between 1999 and 2016 an equal weighted portfolio of the 30 most popular stocks with $20+ billion in market cap had a monthly alpha of 7 basis points. These stocks underperformed the market by 5 basis points per month. These stocks gained 1.45% per month between 2012 and 2016, vs. 1.19% for the S&P 500 TR Index. 53 Hedge Fund Alpha

30 Most Popular Mid-Cap ($10-$20 Billion) Stocks:

Between 1999 and 2016 an equal weighted portfolio of the 30 most popular mid-cap ($10 - $20 billion in market cap) stocks had a monthly alpha of 18 basis points. These stocks outperformed the market by 28 basis points per month. These stocks returned 1.82% between 2012 and 2016 vs. 1.19% gain for the S&P 500 TR Index.

2017 Q4 2017 Q3 No of HFs Total Value No of HFs Total Value Company Ticker (out of 663) (x1000) Popularity (out of 666) (x1000) Popularity Dell Technologies Inc. DVMT 71 4851646 0.107 70 5016397 0.105 MGM Resorts International MGM 67 4505875 0.101 63 3990417 0.095 D.R. Horton, Inc. DHI 57 3328795 0.086 45 2614975 0.068 Lennar Corporation LEN 56 3183664 0.084 44 2104199 0.066 IAC/InterActiveCorp IAC 54 2159534 0.081 61 2109202 0.092 United Continental Holdings, Inc. UAL 51 5452723 0.077 51 4921328 0.077 Liberty Broadband Corporation LBRDK 50 3964371 0.075 41 4349726 0.062 Expedia, Inc. EXPE 50 3668379 0.075 68 5292685 0.102 EQT Corporation EQT 50 2662615 0.075 46 2638883 0.069 Ally Financial Inc. ALLY 50 2642474 0.075 46 2451655 0.069 Take-Two Interactive Software, Inc. TTWO 50 1707855 0.075 58 2235389 0.087 Restaurant Brands International Inc.QSR 48 4204356 0.072 54 4663564 0.081 XPO Logistics, Inc. XPO 46 3419692 0.069 44 2402828 0.066 Worldpay Inc WP 46 2485590 0.069 50 2164755 0.075 Laboratory Corporation of America HoldingsLH 45 2024200 0.068 45 1921729 0.068 Marvell Technology Group Ltd. MRVL 45 1919990 0.068 43 1367837 0.065 Vulcan Materials Company VMC 45 1838857 0.068 36 1491266 0.054 Comerica Incorporated CMA 45 1374456 0.068 40 1291235 0.060 Incyte Corporation INCY 44 4172209 0.066 53 5188998 0.080 FleetCor Technologies, Inc. FLT 44 2645001 0.066 42 2994494 0.063 Yandex N.V. YNDX 44 1310930 0.066 45 1361495 0.068 SBA Communications Corporation SBAC 43 2371295 0.065 45 2223343 0.068 Wynn Resorts, Limited WYNN 43 2131974 0.065 47 2664162 0.071 Align Technology, Inc. ALGN 43 1419178 0.065 35 1029549 0.053 Masco Corporation MAS 43 1017972 0.065 33 702018 0.050 Liberty Media Corporation LSXMK 42 3127173 0.063 42 3133290 0.063 Shire plc SHPG 41 2932783 0.062 54 3241919 0.081 Alliance Data Systems Corporation ADS 41 2703515 0.062 41 2137451 0.062 Palo Alto Networks, Inc. PANW 41 2011349 0.062 37 2221511 0.056 Zions Bancorporation ZION 41 1307468 0.062 35 1057306 0.053 54 Hedge Fund Alpha

30 Most Popular Smid-Cap ($4-$10 Billion) Stocks:

Between 1999 and 2016 an equal weighted portfolio of the 30 most popular smid-cap ($4 - $10 billion in market cap) stocks had a monthly alpha of -7 basis points. These stocks outperformed the market by 21 basis points per month. These stocks returned 0.79% per month between 2012 and 2016, vs. 1.19% return for the S&P 500 TR Index. 55 Hedge Fund Alpha

30 Most Popular Small-Cap ($1-$4 Billion) Stocks:

Between 1999 and 2016 an equal weighted portfolio of the 30 most popular small-cap ($1 - $4 billion in market cap) stocks had a monthly alpha of 20 basis points. These stocks outperformed the market by 57 basis points per month. These stocks had an average gain of 1.20% per month between 2012 and 2016, vs. 1.19% gain for the S&P 500 TR Index. These stocks lost an average of 29 basis points per month in 2015 and 2016, vs. a gain of 59 basis points per month for the S&P 500 TR Index during the same two years. 56 Hedge Fund Alpha

25 More Most Popular Small-Cap ($1-$5 Billion) Stocks:

Between 1999 and 2016 an equal weighted portfolio of the 15 most popular small-cap stocks had a monthly alpha of 38 basis points. These stocks outperformed the market by 64 basis points per month. These stocks outperformed the market in each of 2012, 2013, and 2014. However, they lost an average of 1.36% per month in 2015, vs. 1.85% gain for the market. They also lost an average of 0.65% per month in 2016, vs. a gain of 1.00% per month for the market. Our recent research has shown that we can enhance the performance of these stocks by excluding the stocks with more than 5% short interest. We already listed the 15 most popular small cap stocks on pages 4 and 5. In this table you can find 25 more small cap stocks that are popular among hedge funds. 57 Hedge Fund Alpha

30 Most Popular Micro-Cap (<$1 Billion) Stocks:

Between 1999 and 2016 an equal weighted portfolio of the 30 most popular micro-cap (less than $1 billion in market cap) stocks had a monthly alpha of -15 basis points. These stocks outperformed the market by 67 basis points per month. These stocks had an average gain of 1.31% per month between 2012 and 2016, vs. 1.19% gain for the S&P 500 TR Index. 58 Hedge Fund Alpha

60 Most Concentrated Hedge Fund Positions:

This is another list we prepared for this issue. We believe you can find a lot of good investment ideas among these stocks. Hedge funds will have more influence on the management of these companies. This may not always be a good thing (i.e. in turnaround companies) but we believe these companies are more likely to spinoff units, buy back shares when they are trading at a deep discount, or sell themselves to unlock value. 59 Hedge Fund Alpha

60 Most Concentrated Hedge Fund Positions (Page 2):

This is another list we prepared for this issue. We believe you can find a lot of good investment ideas among these stocks. Hedge funds will have more influence on the management in these companies. This may not always be a good thing (i.e. in turnaround companies) but we believe these companies are more likely to spinoff units, buy back shares when they are trading at a deep discount, or sell themselves to unlock value. 60 Hedge Fund Alpha

High Conviction Picks of Value Hedge Funds

In this section we will share the list of stocks that at least one value hedge fund owns at least 10% of the outstanding shares. 61 Hedge Fund Alpha

High Conviction Picks of Value Hedge Funds

In this section we will share the list of stocks that at least one value hedge fund owns at least 10% of the outstanding shares. 62 Hedge Fund Alpha

High Conviction Picks of Value Hedge Funds

In this section we will share the list of stocks that at least one value hedge fund owns at least 10% of the outstanding shares. 63 Hedge Fund Alpha

High Conviction Picks of Value Hedge Funds

In this section we will share the list of stocks that at least one value hedge fund owns at least 10% of the outstanding shares. 64 Hedge Fund Alpha

Concentrated High Conviction Hedge Fund Bets

In this section we will share the list of stocks that at least four hedge funds allocated at least 10% of their 13F portfolios. 65 Hedge Fund Alpha

Highlights From Hedge Fund Investor Letters

We are going to share excerpts from the following hedge funds’ investor letters: Third Point, Atlantic Investment Management, GMT Capital, FrontFour Capital, Lakewood Capital, Jana Partners, Emerging Value, Greenhaven Road Capital, Arquitos Capital, Longleaf Partners, Dane Capital and Wolf Hill Capital.

We will start off with some macro comments and market outlook from Third Point:

Strong global growth, tepid inflation and the rollback of the Administrative State created a benign environment for equity investing in 2017. Global growth was boosted by easing financial conditions resulting from the Fed’s decision not to follow through on its expected rate hikes and by China’s credit and fiscal stimulus. The breadth of global growth translated to similar strength across most global equity indices and sectors. While such growth was a natural outcome of easing financial conditions, the big macro surprise of 2017 was the reversal of the upward trajectory of U.S. core inflation. This turnabout – coupled with the stalling of tax and health care reform legislation earlier in the year – was a recipe for the consensus trades of early 2017 to go wrong. Contrary to expectations, the U.S. Dollar plunged, U.S. rates failed to march higher, tech put up its best year since 2009, and U.S. equities fared strongly against their foreign peers, especially in risk-adjusted terms.

For 2018, the key question is to what extent the benign environment can persist. While growth is unlikely to accelerate much further, easy financial conditions and pending fiscal stimulus can sustain growth around current levels. Inflation is likely to drift up only modestly and remain at or below central bank targets. In the U.S., where we are primarily focused, we see indications that the favorable backdrop for our investment approach will continue due to a variety of factors: easy financial conditions, tax cuts and fiscal spending, increased capex, and deregulation. Specifically, we think that:

1. Easing financial conditions are a key pillar of growth. The current U.S. financial conditions impulse of ~1.0% is the greatest since 2009 and expected to support growth near the current above-trend pace during at least the first half of 2018.

2. The tax cut and increases in fiscal spending could boost GDP growth by ~1.0% (relative to trend growth of ~2.0%). The key point is that a gradually waning financial conditions impulse over the course of 2018 can be offset by a fiscal stimulus impulse, which thereby can keep growth at an above-trend pace for longer.

3. Capex has room to surprise to the upside in 2018 for a variety of reasons. The economy is entering the later part of the cycle, during which rising wages tend to accelerate capex. Free cash flow is high while CEO confidence and capex intention surveys are at their most bullish levels since 2004. The recent tax deal further incentivizes capex through a) its stimulation of aggregate demand, which leads to higher investment via a feedback loop, b) the cut in the corporate tax rate, which increases the after-tax return on capital, and c) accelerated depreciation allowances. With low- to mid-single digits nominal capex growth embedded in bottom-up estimates, the bar for positive surprises is low. Higher capex could galvanize a cyclical rise in productivity, which has recently started to rebound from generationally-low levels. 66 Hedge Fund Alpha

Highlights From Hedge Fund Investor Letters

4. The impact of deregulation is difficult to estimate but important to study. The Trump administration has promised that its ratio of eliminated regulations to new ones will be 2:1 and, so far, it seems to be on track to meet this goal. Bank regulation is unlikely to become tougher and might relax at the margin, as in the case of the Volcker Rule. Deregulation could lift potential growth, possibly at the cost of increasing financial stability risk later down the road

While we remain optimistic about the trajectory of the economy and markets, we have weighed our positioning with an acute awareness of the risks. Although we do not fear a recession now, “event risks” need to be considered. The four issues we are most closely watching are:

1. The unusually favorable combination of accelerating growth and tepid inflation seen in 2017 is unlikely to repeat. Historically, the best time for markets is when growth is accelerating. Since growth is already at a high level, further acceleration is less likely. That means that average returns will likely be lower and volatility higher this year than in 2017.

2. While inflation is likely to drift up only gradually, as the events of 2017 have shown, forecasting inflation is anything but simple and the market’s reaction to higher than-expected inflation readings is hard to predict. Low inflation has been a critical support for the market because it has allowed the Fed to be unhurried in its rate normalization, which has kept long-term rates subdued. We are watching closely to see how a tightening labor market and recently announced wage hikes will shape the future path of inflation. Labor’s inability to gain pricing power so far in this cycle has been a key pillar of the market’s bullish equity story.

3. Earnings growth has been strong, supporting the market and P/E multiples. In both absolute terms and relative to expectations, the momentum of earnings growth is at a peak and its normalization could create greater volatility compared with the tranquility of 2017.

4. The odds of a recession over the next one to two years are low due to a) the current strong level of growth supported by easy financial conditions, b) the growth support from tax cuts and fiscal spending, c) the low level of the real Funds rate, and d) the lack of major macroeconomic imbalances such as excess credit growth or overinvestment. Sometimes, however, recessions are caused by unanticipated events. A recession would come as a surprise to investors and would likely lead to a substantial market decline given the expansion in valuations in recent years and the concern that the Fed would not have enough ammunition to sufficiently stimulate the economy.

We believe that our relatively concentrated portfolio of event-driven names is well positioned considering the conditions we have described. While short-selling is always particularly challenging in a bull market, we think that the special situations we have selected in this area will underperform markets and reduce our overall correlation, dampen volatility, and generate alpha. 67 Hedge Fund Alpha

Highlights From Hedge Fund Investor Letters

Atlantic Investment Management’s Market View:

The outlook for global economic growth has not been this favorable in many years. In the US, the current administration is intent on further boosting economic growth in 2018 and beyond. The December passage of the tax bill included a major reduction of the corporate tax rate from 35% to 21%, while providing substantial tax relief for individual tax payers. In 2018, we expect the Trump Administration to push for a trillion dollar plus infrastructure bill and further pro-business deregulation.

The likely result of these policies will be growth-induced inflation, further rising commodity prices and continued short term interest rate hikes, as already indicated by the Federal Reserve. Higher inflation and economic growth will benefit cash producing companies (pricing power and volume growth), while most bonds, cash, and highly overvalued stocks that depend on a DCF analysis to justify their current valuation, are likely to be held back.

In Europe, economic growth continues to surprise on the upside with the upshot being that the ECB will likely find itself behind the curve in terms of changing tack from an accommodative stance to a gradual tightening approach (i.e. end QE and eventually raise short term rates, like in the US). This is already causing strength in the Euro, which we think is likely to persist as a result. Brexit will continue to be mostly a UK issue, although we see economic conditions there as trending positive, albeit below full potential. In Asia, China continues to be an unparalleled growth engine with most other Asian nations following a solid growth trajectory. Japan is more subdued in terms of economic growth but nonetheless solid economically in part due to the Abe Government’s pro-business policies.

For 2018, we expect 4.0% global GDP growth, with U.S. economic growth of 3.0%, increasingly stronger growth in Europe (up to 2.5%), Japan at 1.5% and further strengthening emerging markets growth to the 5.0% mark. This global economic growth context combined with continued strong corporate earnings growth, still low interest rates and a conducive environment for value-enhancing corporate action, shareholder activism and takeovers, supports our view for an upward bias in global equity markets and a generally favorable environment for stock pickers.

GMT Capital’s Market View:

Given the broad based growth in the world economies we expect a -5% to +15% move in the S&P even though we are starting the year at high levels. While we believe the impact of the recent changes to tax policy has largely been priced into those individual securities that are clear beneficiaries, the wider impact, although harder to gauge, will likely be a further catalyst for economic growth. The largest threats to the market are political shocks or more likely a significant (1% to 2%) increase in interest rates. We are seeing inflationary pressures in many places including wages in the USA, the weak dollar, and higher energy, metals, and construction prices. We intend to take advantage of this market backdrop by increasing our short positions in interest-sensitive companies such as utilities and heavily indebted companies while maintaining significant long equity exposure in areas such as technology, mining, energy, and emerging markets to take advantage of economic growth. We believe we are well positioned for upcoming markets, which should allow us to perform well for you both on an absolute and relative basis. 68 Hedge Fund Alpha

Highlights From Hedge Fund Investor Letters

Lakewood Capital’s Thoughts on the Market Environment:

It’s no secret that higher-valued growth and momentum stocks vastly outperformed value stocks in 2017, and in fact, this phenomenon has largely persisted since 2012 (with only a few, minor interruptions). This dynamic has created ongoing challenges for many investors that employ value-oriented long approaches as well as stock-specific short selling approaches like we do here at Lakewood. Nonetheless, we have always believed the fund’s performance can overcome the broader market backdrop with a disciplined, yet flexible, approach that should deliver solid results in suboptimal environments and 3 fantastic results in favorable environments, and fortunately, this is largely what has occurred over the years.

While I unfortunately have no idea when value investing will be particularly “in vogue” and when higher- valued stocks may once again sharply lag the broader market (as they have historically done), I am certain such an environment will inevitably return. And, with most newly-minted successful investors now familiar with just one particular formula for investing success, I am optimistic that our contrarian, value-based approach will provide us with a unique and meaningful advantage over the vast majority of current market participants. Furthermore, as investors grapple with concepts like absolute vs. relative returns and indexing vs. active portfolio management, it is important to realize that the market today looks very different than it has in years past.

Following nine years of strong market performance, just five companies (Apple, Alphabet, Microsoft, Amazon and Facebook) now account for over $3.5 trillion of market capitalization.

To put this in perspective, this value is more than the sum of over 2,200 companies in the Russell 3000 Index (the 3,000 largest publicly-traded U.S. stocks), and the average market capitalization of these five companies is nearly 400 times larger than the median publicly-traded company market capitalization. Notably, these five behemoths are all technology stocks.

So, why is this important? I believe, in the years ahead, individual stock picking should provide an increasingly differentiated result (for better or worse) from the broader market which is now largely driven by just a handful of companies, and importantly, this broader market result will undoubtedly be tethered to the fate of a single, richly-valued industry sector. Finally, we have modestly increased the fund’s gross and net exposures in recent weeks as we believe the market has not fully reflected the strong positive impact of U.S. tax reform on several of our long positions. Companies like Ally Financial, CIT Group, Citigroup, HCA, Comcast and WestRock should see a 15% to 20% increase in their 2018 earnings from reduced taxes (before accounting for any business growth).

While several of these stocks are up 5% to 10% in the past few months, we believe material upside remains ahead (as a side note, many of the companies we are short are unprofitable and likely to remain so, thereby rendering reduced corporate tax rates irrelevant to valuation). We also recognize the odds of a swift pick-up in growth have increased with the economy being served a powerful cocktail of low corporate taxes, vast sums of repatriated cash from overseas, historically low unemployment rates and continued low interest rate levels. 69 Hedge Fund Alpha

Highlights From Hedge Fund Investor Letters

Jana Partners On Teva Pharma (TEVA), Autodesk, Inc. (ADSK) & PTC Inc. (PTC):

We have been following TEVA for years and have had a consistently bearish outlook for the company as we observed negative pricing trends in generics, risk of loss of exclusivity in COPAXONE, poor capital allocation (the purchase of the Allergan plc (AGN) generics business at a peak multiple in 2015 just as pricing was about to roll over), and a heavily indebted balance sheet. This is not the setup we usually look for in a new long! But the audacity of the restructuring plan laid out by new CEO Kåre Schultz in December grabbed our attention and we quickly built a long position. Kåre’s track record driving outstanding shareholder returns at Novo Nordisk A/S (NOVOB DC) and H. Lundbeck A/S (LUN DC) also caught our attention. We believe he will be successful in achieving $3 billion of cost cuts, which will put TEVA on a footing to alleviate its balance sheet problems and return to a future of profitable growth. We pencil in a $30 price target, giving full credit for the cost cuts and debt paydown and an EV/EBITDA multiple of just over 9x on 2020 numbers.

We have been increasing our focus on software businesses for the last few years. Our thesis is that the good ones are monopoly like businesses with durable pricing power that can benefit meaningfully from the change in customer purchase behavior away from license and maintenance and towards subscription contracts. Microsoft Corp. (MSFT) was a successful investment in 2015 and Salesforce.com Inc. (CRM), which we wrote up in our year end letter for 2016, was one of our most profitable positions in 2017. We have been following ADSK for several years and are still kicking ourselves for not getting involved in the first quarter of 2016. At the time though we admired the monopoly position Autodesk enjoys in the architectural vertical we struggled to find grounding in a valuation framework as the transition the company was making to monthly service contracts resulted in declining revenues and negative free cash flows. Roll the tape forward to present day and we have greater confidence in the new leadership at ADSK, proximity to the inflection to positive FCF (which should occur in 2018) and an attractive entry point following a 20% pullback in the wake of the late November earnings report. We see FCF of $6.25 per share in 2019, which justifies a target price north of $160 given that we believe FCF could double from that level going out to 2022. We do not need to believe in a doubling in out-year FCF to justify our target – but we think it is a lot easier to peer that far into the future with a business of Autodesk’s quality. PTC is sort of the Autodesk for industrial applications. It is not quite that good, because PTC has some legitimate competitors in its market, but PTC also has a potentially big opportunity in the Internet of Things (IoT) that could be as big as the core CAD and Product Lifecyle Management businesses if the IoT franchise grows at the rates management expects. We got involved early in the fourth quarter after the stock had traded sideways for a few months following a minor setback in their Japanese business. We think EPS can hit $5 in calendar 2021 once the transition to a subscription model has stabilized. We have an undiscounted target price north of $100. We like the business standalone, but PTC also looks to us like an attractive acquisition candidate. 70 Hedge Fund Alpha

Highlights From Hedge Fund Investor Letters

FrontFour Capital on Fiat Chrysler (FCAU):

Investors and sell-side analysts continue to concede that FCAU’s management will be able to hit its 5-year plan financial targets that were previously thought to be too ambitious. The superior (and sustained) execution on the EBIT margin front in the Company’s North America, light truck-focused business has led to increasing investor confidence which we believe will continue into 2018.

Looking ahead to 2018, we believe FCAU shares have significant upside as it trades at 2.6x forward EBITDA (versus 3.4x and 3.0x for GM and F, respectively). Notably, several key catalysts will drive upside to shares during the year – as our thesis is not dependent on the US North American auto cycle. First, the launch of new models globally for both the Jeep Cherokee and Wrangler brands using flexible capacity will indicate to investors the significant value that should be ascribed to the core pick-up truck business. We expect to receive new details on the product launch during this week’s annual Detroit Auto show.

Turning to the Company’s broader portfolio of assets, we continue to expect the well-telegraphed spin-off of FCAU’s non-auto components assets (e.g. Magneti Marelli) to be announced by mid-2018. In addition, CEO Sergio Marchionne has been increasingly vocal about the Company’s premium brands, Maserati and Alfa Romeo, not fitting with the remaining core portfolio. As a result, on the scheduled June 1st, 2018 capital markets day, we expect a new portfolio rationalization plan that could include the spin-off of this luxury segment. We believe there is continued appetite for luxury auto brands in today’s equity market as Aston Martin recently announced IPO plans and shares of former FCAU spin-off Ferrari (NYSE: RACE) continue to trade at a high-teens EBITDA multiple. Finally, we expect the Company to meet its target to be debt free by year-end 2018.

As the sequence of the aforementioned events transpire, we believe investors will recognize the value of the remaining core Jeep/Ram business. The light truck-focused operations are a strategic asset and could be merged with another global Auto OEM resulting in significant manufacturing cost synergies. Applying a 3x forward multiple to our 2019 FCAU EBITDA estimate, yields a target price of $31 per share, significant upside to current trading levels.

Emerging Value Capital Management on GM and Fiat Chrysler (FCAU):

General Motors continued its multi-year transformation. From a mismanaged, highly cyclical company mostly controlled by its labor unions, GM has become a well-managed highly profitable and innovative corporation run for the benefit of its shareholders. We were glad to see the divestiture of the loss making European operations as an additional important step in this transformation.

GM recently unveiled part of its extensive R&D efforts in self driving cars, electric cars and transportation as a service. Analysts following the company came to realize that these emerging technological areas were not just a risk factor for GM, but also a potential business opportunity. The stock increased significantly as a result, yet still remains cheap trading for under 7X annual free-cash-flow of $9B with a 3.6% dividend yield. 71 Hedge Fund Alpha

Highlights From Hedge Fund Investor Letters

Good financial results combined with the emergence of several potential acquirers propelled Fiat Chrysler’s stock up significantly. Investors were initially skeptical that the company would meet its five year plan and earnings projections, announced in 2013, and reacted favorably when it became clearer that it probably will.

A merger between GM and Fiat Chrysler, if it can be approved by regulators, makes tremendous business sense. The companies have minimal overlap between their vehicle brands and could achieve several billion dollars in annual cost savings. Fiat Chrysler remains cheap, trading for under 8X annual free-cash-flow of $6B.

Greenhaven Road Capital on Fiat Chrysler (FCAU) :

Despite an almost doubling of the share price in 2017, I believe that there is still value to be had in Fiat Chrysler. In 2018, it is likely that the company will spin off its parts business, revealing the underlying value, reducing gross debt, and becoming net cash positive. Further, we should see operating leverage as earnings continue to improve after a multi-year period of investment. The company just announced earnings today and provided guidance for 2018. The shares trade for less than €20, yet guided to over €4 of cash flow for the year and ended the year with net cash of more than €2. At current prices we will end the year with a greater than 20% FCF yield, which leaves a lot of room for multiple expansion for a company that will benefit from tax reform, substantially reduce its gross debt, and have new product and product mix tailwinds. Keep in mind, 2018 will be Sergio Marchionne’s last year as CEO and the automobile industry has several negative attributes, including high capital intensity, cyclicality, high fixed costs, low returns on invested capital, and product obsolescence. It is unlikely that we will be owners forever, but since a lot of good news is likely in store for the company this year, it remains our largest position.

Wolf Hill Capital on Constellium (CSTM):

In recent quarterly letters, we discussed in detail our thesis behind our largest position, Constellium, and why we thought this aluminum fabricator offered the potential for a 4-5x potential return. As this remains our largest position due to price appreciation, a quick update is in order. During the quarter, CSTM partially recapitalized its balance sheet by simultaneously issuing 25 million shares of stock and issuing a new unsecured bond. The proceeds from these capital markets transactions were used to retire several issues of outstanding bonds and to strengthen the company’s balance sheet. While these transactions served to partially de-risk the company’s levered balance sheet, they came at a steep cost in terms of shareholder dilution. The net result is that the secondary stock sale took the wind out of the sails of those looking for a quick sale to a strategic buyer. That said, the de-leveraging impact of the recapitalization along with continued solid operational execution and secular tailwinds in CSTM’s key end-market should provide the foundation for the next leg of CSTM’s resurgence. In fact, as we put the finishing touches on this letter, Bloomberg News is reporting that Mumbai-listed Hindalco is close to announcing a transaction to acquire privately held CSTM competitor, Aleris Corp. for $2.5b. This would represent 12.1X LTM EBITDA multiple for Aleris, a rich valuation that highlights the scarcity value and desirability of domestic aluminum fabrication assets. Applying the same multiple to CSTM would result in a $30+ stock price, 3x where it is currently trading. Just saying… 72 Hedge Fund Alpha

Highlights From Hedge Fund Investor Letters

Greenhaven Road Capital on Yatra Online (YTRA):

Clearly, a lot went right in 2017, but one of our holdings, Yatra declined significantly. We began buying shares last year above $9 and continued to buy more above $10 per share. Our last purchases this month were for less than $7. As you may remember, Yatra is an OTA (Online Travel Agency) that trades in the U.S. on the NASDAQ, but operates in India. I discussed YATRA in great detail in a presentation that can be found on our website (www.greenhavenroad.com). At the time of our first purchase, the core thesis was two-pronged. First, Yatra came public through the SPAC (Special Purpose Acquisition Corp) process and was virtually unknown to U.S. investors – interest could be garnered with even a bare-bones investor relations effort. More importantly, Yatra would benefit from a number of secular tailwinds that were India-specific. As U.S.-focused investors, it is easy to forget what real economic growth looks like. India is not hoping for 3% GDP growth; they are enjoying real 6-8% growth, and travel is growing at almost double that rate as it is one of the first consumption items for a growing middle class. Further, online travel bookings are growing faster than the travel industry as a whole, given growing penetration of internet connectivity and smartphones. The setup seemed very favorable. Yatra was valued at a fraction of Make My Trip (MMYT), the largest OTA in India, while benefitting from all of the same secular tailwinds. In addition, Yatra has a greater emphasis on corporate travel, which has less couponing/discounting and allows Yatra to build a relationship with corporate travelers who, given their economic position, are also most likely to travel personally. To date, there has been a complete disconnect between Yatra’s stock price and the company’s performance. In the last quarter earnings, revenue (less service costs) was up 46% year over year, margins improved, and EBITDA was up 50%. Still, the stock price has declined by more than 30%. The current year enterprise value to revenue ratio is less than 2. We have been buying shares all the way down. In the opening paragraph, I said we are looking for situations where the risk/reward seems so favorable that it makes no sense. In the case of Yatra, for less than $200M (ex cash), we can buy the #2 player – with its strong brand, largest hotel inventory, and long-term corporate travel contracts – in a geography and industry with very strong secular tailwinds. I like our chances, but to date, Mr. Market “is not believing.” I think we are just early, but it looks and feels a lot like being wrong. We have not sold a single share or warrant.

It should be noted that last week, Norwest Ventures, which was a 20% shareholder in Yatra, filed that they had exited their position. Their selling pressure may have contributed to the recent price declines. Time will tell.

Dane Capital: Yatra Online (YTRA) (Dane Capital returned 50% in 2017)

Yatra is the second largest OTA in India, the fastest growing large economy in the world. We believe the opportunity for the company is vast, and despite guidance of 35-40% annual revenue growth, we suspect that as personal incomes rise, the Indian travel market will get off the bottom of the “S-curve” and growth could accelerate dramatically. In the short-term, we believe business is good, but the stock has acted poorly for several months. We believe this is almost solely due to a large seller. Filings indicate that Norwest Ventures, which held shares for 10 years, and probably was past its vintage, no longer holds any shares. We believe they distributed the shares to their LP, and suspect that they have been bleeding shares in recent months. We suspect that when the selling dries up, the stock will stage a strong recovery based on excellent fundamentals and the company continuing to operate to plan. We believe this story is in its early stages and we will be rewarded for our patience. 73 Hedge Fund Alpha

Hedge Fund Investor Letters: Stock Highlight

FrontFour Capital: Cars.com Inc. (CARS)

A new position initiated in the fourth quarter of 2017 is our position in Cars.com Inc. (NYSE: CARS). CARS is a digital marketplace for buying and selling cars which derives revenue via subscription advertising from approximately 21,000 franchise and independent car dealerships (~80% of total company revenue). CARS dealerships pay to list their inventory online choosing among different pricing tiers that vary based on quality of ad placement. The balance of revenue is derived from auto OEMs who pay to display website advertisements.

We have followed Cars.com for several years dating back to our investment in Tribune Media (NYSE: TRCO) in 2013 during which TRCO sold its stake in CARS to Gannett Company. In May 2017, CARS was spun out of TV broadcaster TEGNA Inc. (NYSE: TGNA), one of the two companies formed after Gannett split its operations. Following the spin-off, shares of CARS experienced technical selling from legacy TGNA shareholders and lack of adequate sell-side coverage. After the company missed 3Q17 earnings estimates and lowered guidance in mid-November 2017, we initiated our position on share price weakness.

We believe that investors misunderstand CARS’ six legacy affiliate agreements expiring in 2019 – 2020. As these contracts roll-off, we estimate new agreements will contribute an incremental $100MM in annual revenue at a 70%+ incremental margin due to rate increases alone. The legacy affiliate agreements were not optimizing CARS profit as they were entered into with a group of its previous owners – going forward new agreements will be completed as arms-length transactions. In terms of valuation, at the time we initiated our position, CARS was trading at an extremely attractive valuation of 6x normalized EBITDA. We considered it very attractive given CARS is a unique advertising based media asset with recurring revenues and high margins. Finally, we believe CARS could ultimately be an attractive acquisition target given auto marketplace deal activity in recent years (e.g. AutoTrader, TRADER Corp.) and private equity interest in recurring revenue businesses. The realization of value for CARS shareholders was pulled forward on December 18th as an activist investor filed a 13D, resulting in share price appreciation.

Arquitos Capital on MMA Capital (MMAC): (Arquitos returned 64% in 2017)

Our biggest near-term opportunity is MMAC itself. On January 9, the company entered into a transformational agreement that involves an outside entity buying certain MMAC assets, taking over management responsibilities, and acquiring $8.375 million worth of shares at an average price of $33.50. That price is 38% higher than the trading price before the announcement. The current trading price has not completely caught up yet, but it will. There is no reason why shares would not trade at book value, especially considering that the company plans to continue to aggressively repurchase shares. Book value is 20% higher than today’s price. 75 Hedge Fund Alpha

Hedge Fund Investor Letters: Stock Highlight

Longleaf Partners: CenturyLink (CTL)

The global fiber and integrated communications network company, was the Fund’s largest holding and declined during the year and fourth quarter, even though the stock rallied over 22% from its November low after CTL’s purchase of Level 3 closed. Throughout, our investment case grew more compelling. The merger of Level 3’s fiber network with Qwest’s assets that CTL had previously acquired created a uniquely competitive global fiber network that has particular strengths in the higher margin, growing Enterprise segment. Level 3’s CEO Jeff Storey becoming President and COO and eventual CEO of CTL and Sunit Patel maintaining the CFO position in the combined company were critical to our support for the deal. Their leadership makes us confident that CTL management will be able to drive mid single digit Enterprise revenue growth at high contribution margins, cut costs substantially and deliver the projected $1 billion in deal synergies, much of which will be created by moving traffic onto the company’s combined network from third parties.

Despite CTL’s stronger positioning, the stock price fell, in part because Level 3 customers delayed new purchases until it was clear who would lead the combined company. But, the primary price pressure was due to fears that CTL would not be able to sustain its double-digit dividend yield (a valid concern without the Level 3 acquisition). This worry heightened after the stocks of two mostly unrelated and massively overleveraged regional operators which were more closely aligned with CTL’s legacy landline business than the fiber business, saw their stocks collapse after dividend cuts. Storey and Patel confirm that the dividend is safe based on the combined EBITDA of the Level 3 and CTL fiber networks, the synergies from the deal, and the use of Level 3’s NOLs to reduce taxes. By our estimates, once the synergies are realized, the company should deliver over $3/ share of Free Cash Flow (FCF) after capital expenditures (capex), which will amply cover the $2.16 dividend. We see material additional upside not built into our appraisal based on Patel’s record of cost cutting after mergers and the multiple players that would benefit from owning this network. When the stock price dramatically disregarded the positive fundamentals and our assessment of CTL’s intrinsic value, we bought more, including in the fourth quarter. Management and the board appeared to share our enthusiasm as demonstrated by significant December insider purchases as soon as the blackout period that prohibited purchases was lifted. 75 Hedge Fund Alpha

Hedge Fund Investor Letters: Stock Highlight

Lakewood Capital’s Short Thesis on Marijuana Stocks Canopy Growth & Aurora Cannabis:

If there are any investors in the world riding as high as the shareholders of the aforementioned Celltrion, they are likely to be found holding the publicly-traded marijuana stocks. Ever since recreational marijuana was legalized in Colorado in 2013, retail investors have been in a frenzy to try to play the impending cannabis boom, often being sucked into many stock promotions and scams along the way.

Despite a trend towards increased legalization of recreational marijuana at a state level, it is still illegal to sell pot under U.S. federal law, and consequently, investors have flocked to Canadabased cannabis companies that operate safely outside of the purview of the U.S. government. Enthusiasm has been particularly acute in the past year as anticipation grows for Canada to legalize marijuana for recreational use in mid-2018. Heading into the final months of 2017, each of these public companies sported market capitalizations that were nearly impossible to rationalize, but nonetheless, the stocks saw their values more than triple in just a few short weeks around year end as focus turned to the legalization of recreational marijuana in California on January 1, 2018.

It has been hard to come across a retail investor rag or stock blog without hearing about some way to play this theme, and countless web sites are now devoted to investing in this exciting industry. Google searches for “marijuana stocks” quadrupled in the month of December alone, new ETFs were created to give investors exposure to this red-hot space, trading volume in the public companies skyrocketed, new capital was being raised on an almost daily basis, and before you knew it, Canada had a new class of multi-billion dollar companies that were little more than business plans just a few short years ago.

Despite the recent mania around the legalization of recreational pot in California, there is a little problem: none of these companies sell at all into California (or anywhere else in the U.S. for that matter), since that would, of course, be illegal. The fund is short both Canopy Growth, a C$7.5 billion market capitalization company, and Aurora Cannabis, a C$6.5 billion market capitalization company. I suppose it’s easy to understand the appeal of these stocks to the casual investor – strong regulatory momentum, constant press coverage, growing public acceptance, an absence of large incumbents and an enormous, rapidly expanding market opportunity. These attributes would serve as the foundation of an intriguing investment thesis if getting into this business wasn’t so simple.

Canopy Growth will lead you to believe it is building competitive advantages through its industry-leading capacity expansions or partnerships like the one it struck last year with Snoop Dogg and his “Leafs by Snoop” brand or by potentially one day selling cannabis-infused beverages through a relationship with beer, wine and spirits company Constellation Brands (which would be illegal in the U.S.). Aurora Cannabis might tell you they have an advantage as the only grower in the low-cost Alberta region nestled in the 76 Hedge Fund Alpha

Hedge Fund Investor Letters: Stock Highlight

Canadian Rockies (but only if you ignore the fact that no one else grows there because of negative 10° Fahrenheit weather conditions or the frequency of hail storms that at a minute’s notice could destroy their entire greenhouse operations) or through their accomplished management team led by Alberta’s “youngest master electrician” and founder of one of Canada’s “Top 50 Fastest-Growing Companies” (which actually is just a tiny Alberta-based construction permit and inspection company called Superior Safety Codes).

But, what these companies certainly won’t tell you is that the number of licensed producers in Canada has doubled in the past year and is growing rapidly by the week, it costs just a few thousand dollars to obtain a cultivation license, the industry has collectively raised an astonishing C$2.1 billion in recent quarters and leading producers announced plans for a greater than ten-fold increase in their capacity over the next eighteen months.

Remarkably, we estimate that Canopy Growth’s current production capacity can be recreated for less than C$150 million, and Aurora’s current production 8 capacity can be recreated for less than C$100 million, just a small fraction of their current enterprise values. The industry’s stock valuations have become so extreme that one co-founder of a leading Canadian producer told us he would not “touch [these stocks] with a ten- foot pole” and that he thought they were “way overbought” even before the recent run-up in the stock prices. Simply, we believe it is not a matter of if, but when these stock prices collapse… otherwise we should all be moving to Canada and growing pot. After all, a $100 million production facility should be good for at least $5 billion of market capitalization in the current environment. This cannot and will not last.