Mitt Romney may or may not make a good president, but he is one incredible investor.
Romney tried to keep his tax records and other financial information as private as possible, but Gawker recently obtained some confidential financial documents that reveal some of Romney's hedge fund investments. Romney trusts some of his money with hedge fund managers Michael Karsch, Frank Brosens and Andreas Halvorsen. These fund managers aren't as well known as David Einhorn, but they are very successful. Romney probably invested with them years ago and enjoyed high returns.
Karsch Capital Management has several billion dollars under management. Its flagship offshore fund cumulatively generated 129% since its inception vs. 22% return for the S&P 500 index during the same time period. The fund has a net exposure of about 50% during the first quarter. Karsch Capital's top four long U.S. stock positions were Viacom (VIA.B), Tyco International (TYC), Express Scripts (ESRX) and CVS Caremark (CVS) at the end of June. Karsch likes companies that return cash to shareholders through buybacks and dividends, like Viacom. Viacom has around $2.5 billion in free cash flow and is using it to buy back its shares. This will result in a share count decline, but the free cash flow generated by the company will probably keep increasing. Karsch expects Viacom's share price to at least double over the next 4-5 years.
Karsch invested in Express Scripts and CVS because of their pharmacy benefit industry (PBM). During a recent private call with investors, of which Insider Monkey obtained a transcript, Karsch said both companies have a great secular thesis, part of a "wave of $90 billion of branded drugs turning generic in the next four years." Karsch said he believes that Express Scripts will be able to double its EBIT over the next five years. Both stocks will benefit from the consolidation in the PBM industry. Personally, we like these stock picks, which are long-term investments that promise attractive returns (read more about Karsch's stock picks).
Frank Brosens' Taconic Capital Advisors is a $7 billion hedge fund founded in 1999. The fund invests in mergers, distressed stocks, restructurings and spinoffs. At the end of June BP (BP), CA Technologies (CA) and General Motors (GM) were among the hedge fund's top stock picks. The fund increased its positions in BP and GM during the second quarter whereas it cut CA position by 50%. BP and GM are two of the most popular value stocks among value investors. At the end of June David Einhorn and Warren Buffett had the two largest positions in GM, among the 400 fund managers we track. Legendary value investor Seth Klarman had more than $500 million invested in BP at the end of the second quarter. We like both stocks as long-term investments.
Andreas Halvorsen's Viking Global is a fundamentally-oriented $14 billion hedge fund founded also in 1999. The fund managed to return 19% annually since its inception. The fund had more than $500 million invested in each of its top five positions: Priceline (PCLN), Mastercard (MA), Visa (V), Schlumberger (SLB) and Apple (AAPL). Apple has been one of the top three most popular stocks among hedge funds since at least the end of 2010. The stock returned more than 150% over the past two years, an amazing accomplishment for a mega-cap stock. We believe it isn't too late to invest in Apple. David Einhorn and Philippe Laffont are among the hedge fund managers who expect the stock to hit $1,000 over the next few years.
Visa and Mastercard have been among hedge funds' favorite stocks because these companies benefit from credit expansion and growth in consumer spending. They're more attractive than banks because they aren't exposed to credit losses. Mastercard more than doubled over the past year, where Visa nearly doubled. We don't think they are very attractive investments at the moment though as they trade at relatively high P/E ratios. We'd rather invest in high-growth stocks like Apple that are priced as value stocks.
Romney stopped picking stocks long-time ago, but the stock pickers he picked did a fantastic job. We can't be sure that Romney is still invested in these hedge funds, but in any case most of the stocks we discussed in this article are attractive long-term investments that you should consider adding to your portfolio.