(Barron's) Barron’s Best 100 Hedge Funds: 2015 List

Barron’s Best 100 Hedge Funds: 2015 List (Full list attached)
Indexing may be in style, but old-fashioned stockpickers rule our list.

Equities dominated Barron’s Penta top 100 hedge fund rankings for the second straight year on the back of a record-breaking bull market now well into its seventh year. Once again, Larry Robbins’ Glenview Offshore Opportunity fund claimed the No. 1 spot, with an impressive three-year annualized gain of 57%.

Even with the recent gyrations in equity markets, stockpicker Robbins is bullish.

“The market continues to show favorable conditions, including valuations that remain attractive, excessive corporate cash balances, and underlevered balance sheets,” says Robbins. What’s more, he sees corporate executives and boards more open to share repurchases, capital improvements, and acquisitions.

Two other positives: Robbins expects the economy to grow at a solid rate and sees systemic risk ratcheted down by central bank and regulatory policies.


Larry Robbins, head of our No. 1 ranking hedge fund, Glenview Offshore Photo: Roger Hagadone for Barron’s
Accordingly, he continues to find opportunities, noting that 40% of his top 20 performers last year were new to his portfolio. For example, he established a 14% stake in the country’s largest operator of animal hospitals -- VCA (ticker: WOOF). He sees the industry as defensive, and the shares cheap at 14.5 times 2015 earnings, and expects top-line expansion of 5% to 6% for the business after several years of dormant growth following the financial crisis. VCA is now in the midst of a $400 million share buyback; the company is making more acquisitions, and the stock has soared from $32 to $53 since Robbins moved in just two quarters ago.

The stellar returns of Robbins and others on our Best 100 list stand out in a year when oil prices plummeted, the U.S. dollar surged, the Federal Reserve kept bond investors on edge, and the Cold War suddenly heated up in Ukraine. Such challenges proved difficult for many funds. Many high-caliber firms didn’t qualify for our list this year, including Ray Dalio’s Bridgewater Associates, David Einhorn’s Greenlight Capital, Chase Coleman’s Tiger Global, and Paul Singer’s Elliott Management.

Another measure of the challenging environment: the closure of some venerable fund names, including Dan Arbess’ Perella Weinberg Xerion fund, which had specialized in distressed credit and special situations, and Brevan Howard’s commodity fund. Several macro funds also shut down, including Josh Berkowitz’s Woodbine Capital Advisors, Keith Anderson’s Anderson Global Macro, and Kingsguard Advisors. And Everest Capital shuttered six of its seven funds after being smacked by the Swiss franc. Industry data analyst HFR reported that in all, 864 funds closed in 2014, a slight decrease from 904 the year before.

The Barron’s Penta survey underscores the great disparities in recent hedge fund performance, a source of controversy to investors who pay top dollar and pushed industry assets past the $3 trillion mark by at least one tally last year. According to BarclayHedge, the average hedge fund returned 7.36% annualized over the three years ended in 2014 (our benchmark); the average for our Best 100 exceeded 21%, net of fees, about a percentage point better the average return of the Standard & Poor's 500.


Brian Gonick and Richard Mashaal, managers of No. 2 Senvest Partners Photo: Gary Spector for Barron’s
The good news for investors is that the average hedge fund management fee declined to 1.51% from 1.54% last year, while performance fees dropped to 17.8% from 18.2%, says HFR.

Like Robbins, almost half of our best performers invested in stocks. Many are great long-term investors who don’t trade frequently, and others, such as Nelson Peltz’s Trian Partners (No. 87), William Ackman’s Pershing Square (No. 54), and Robbins, use their equity stakes to lobby for corporate changes.

Our No. 2 this year is a stockpicker, Richard Mashaal of Senvest Partners, who registered an annualized gain of 44% on the strength of selections like DepoMed (DEPO), which makes pain-management drugs; videogame maker Take-Two Interactive Software (TTWO), publisher of Grand Theft Auto; and Howard Hughes (HHC), a real estate developer whose portfolio includes the South Street Seaport in New York.

Michael Masters $768 million Marlin fund claimed the third spot by focusing primarily on long equity positions, registering three-year annualized returns of 41.63%.

The fourth-place finisher was Camox. Jonathan Herbert’s fund buys small- and mid-cap European stocks, which few expected to excel when 2014 got under way. “Europe is fundamentally stronger than it’s perceived,” explains Herbert, “and its growth engines -- German, Swiss, Austrian, Northern Italian, and Scandinavian global exporters -- are not only firing on most cylinders but many are now getting an added boost from the cheaper currency.” His winners: Temenos Group (TEMN.Switzerland), a global leader in banking software, and Duerr (DUE.Germany), a major provider of auto-plant engineering and paint systems. Camox scored an annualized three-year gain of 36%.

Credit continued its strong showing with more than a quarter of the Best 100 funds’ strategies focused on debt. Brendan McAllister, co-manager of Pine River Fixed Income, No. 51, said agency-backed residential mortgage-backed securities and commercial mortgage-backed securities were clearly the highlights in his fund’s modest 6% return in 2014. This year, he sees strong potential in structured credit. And he believes that the return of volatility to fixed-income markets, which he says was lacking last year, will enhance opportunities.


Jonathan Herbert of No. 4 Camox Photo: Chris Gloag for Barron’s
So how did Barron’s Penta identify these managers? We initially screen out narrow industries and small regions, excluding funds that invest in only one sector or country, and we avoid commodity-focused funds. We will include Asian-Pacific funds, for example, but not China-centric ones. Gold or energy funds are omitted, but diversified commodity trading advisors (aka, managed futures) are considered. And to ensure that we are reporting the results of professionally run shops that offer stability and sufficient liquidity, funds must have at least $300 million and a three-year track record as of Dec. 31, 2014.

Our search starts with information provided by three major hedge fund databases: BarclayHedge, Morningstar, and eVestment, which collectively sort through thousands of funds that meet our basic requirements. We also rely on a variety of industry contacts and proprietary sources to track down funds that operate below most radar screens. Funds are then arranged by three-year performance, with each contacted to confirm accuracy of data and strategy. This year’s reporting was assisted by Contributing Editor Michael Shari and Researcher Yue Jiang.

Noteworthy repeat performers on this year’s list include Michael Hintze’s CQS, Ken Griffin’s Citadel, and Steve Kuhn’s Pine River, each of which have made the list four times; David Tepper’s Appaloosa, claimed a spot for the fifth time.

Will hedged equity funds continue their strong performance? Despite the market’s being only up fractionally through the first quarter of the year, the trend in hedge funds is continuing with equity long-bias and long-short funds up 2.64% and 2.82%, respectively. Global macro has had the quickest start, up 3.79%, nearly matching its return for all of last year. Event driven is up 2.26%; fixed-income arbitrage has climbed 2.25%.

But to thrive for the rest of the year, managers will have to navigate the challenges posed by expanding interest-rate differentials, volatile exchange rates, and continued oil shocks -- which have so far been on the downside. But that could turn on a dime.

Camox’s Herbert, in fact, has turned defensive as his net long position has collapsed from last year’s 95% to 30% during the first quarter of 2015. His long book weight hasn’t changed, but he has ratcheted up his short exposure from 35% to 80%, having loaded up with shorts of the German DAX. But longer term, he remains bullish on Europe.

Senvest has similarly altered its portfolio. It’s maintaining its gross long weight, adding Fiat Chrysler as an ongoing restructuring story, and European financials and real estate investment trusts, including the Bank of Cyprus, Irish Green REIT (GRN.Ireland), Dalata Hotel Group (DHG.Ireland), and Spanish Axia Real Estate (AXIA.Spain). But it has boosted its gross shorts from 15% to 50%, including a bet against McDonalds. “We think its best days are behind it,” explains Mashaal, “and no financial engineering can alter the fundamental trends we see.”

With all of the macro rumblings, Michael Hintze, manager of CQS Directional Opportunities fund (No. 60), expects greater return differentiation among asset classes. Keeping his cards close to his vest, he does give a nod to biotech, robotics, and cybersecurity shares. He believes that the dollar will continue its rally, and with European quantitative easing now a reality, the Continent should offer opportunity. But he urges caution for the medium term, should European leaders further defer fundamental change.

Hintze’s multi-strategy approach keeps his options open. But with the persistence of cheap money, the lack of yield except in stock dividends, plummeting energy prices helping to keep a lid on inflation, and loose central-bank monetary policy, equity managers should be poised for another very decent year.

Fwd:(ZeroHedge) Greece Will Default On June 5 Without Deal, IMF Leaks

Greece Will Default On June 5 Without Deal, IMF Leaks

Another week came and went with no breakthrough in negotiations between Greece and its creditors. The IMF is now fed up and has reportedly refused to be a part of any new bailout program for Greece, after Athens drew down its SDR reserves to makes its latest payment to the Fund. That money will now need to be repaid and in a move that surely marks the new gold standard for absurd circular funding schemes, Greece will likely look to use the next tranche of IMF money to payback its IMF SDR reserve which it tapped to pay the IMF. The country’s public sector employees live in limbo, not knowing from one week to the next whether they will be paid and commuters are now subjected to a 50 second looped highlight reel of the Nazi occupation meant to rally the country behind the government’s quarter trillion euro war reparations claim (they might as well just ask for a 'gagillion') on Germany which has now become the symbol of tyranny and debt servitude for many Greek citizens. 
Given the situation, one would be inclined to think that Alexis Tsipras would be falling all over himself to cut a deal with creditors because while giving up on campaign promises to voters isn’t ideal, it’s better than going down in history as the PM who sent the country careening into a drachma death spiral, and besides, giving up on campaign promises is something most politicians do all the time (it’s a job requirement for the US presidency). Alas we were back to the now ubiquitous ‘red line’ rhetoric on Friday as Tsipras continued to employ the “tell EU officials one thing behind close doors and tell the public the exact opposite a day later” negotiating technique. Here’s more from Bloomberg:
Greece won’t cross its red lines in negotiations with international creditors just because time is pressing to close a deal, Prime Minister Alexis Tsipras said.

 

“Those who think that our red lines will fade as time goes on would do well to forget it,” Tsipras said at a conference in Athens late Friday. “I want to assure the Greek people that there’s no way the government will back down on the issue of pension and wage cuts,” he said. “A deal must be reached but it must be mutually beneficial.”
Europe is once again set to take the stalled negotiations down to the wire as it now appears the next serious round of talks will come in Riga (the site of an epic Varoufakis meltdown that saw the FinMin tweeting out melodramatic FDR quotes after he was forced to have dinner by himself while his EU counterparts attended a gala) when Tsipras will try to close a deal by the end of the month.
Tsipras will address the standoff in bailout negotiations on the sidelines of a meeting of European Union leaders to be held May 21-22 in Riga, Latvia, according to a Greek government official who asked not to be identified as the diplomacy is not public.
If a deal isn’t struck by the end of May, it is truly game over. Here’s the ECB’s Yves Mersch:
“We are in an end game in Greece where the situation is grave. This situation is not tenable. There has been an accord between Europe and Greece to go through a program. This hasn’t been the case since December last year, because the new government said it doesn’t want to have anything to do with the program. But then they can’t demand money that was attached to that program either. In the meantime, they haven’t managed to bring other measures to the table that could lead to the same goal as foreseen in the first program. Greece is convinced it can play along the line of other rules than” the other 18 euro-area members.”
Despite the obviously dire circumstances, the Syriza government still insists it will somehow scrape together cash to meet its obligations...
“Greece Will Pay Wages, Pensions, Varoufakis Tells Skai TV”
...while EU officials (who one imagines are at this point completely amazed at how obtuse the Greek government has proven to be) are left with no option but to remind Greece that Brussels is still waiting on a list of reforms…
“Dombrovskis Reminds Greece to Submit Reform List, Bild Reports”
….and at the end of the day, here is the reality (via Bloomberg)…
"Greece won’t be able to make IMF repayments, beginning with a June 5 payment, unless an agreement is reached with international partners, U.K.’s Channel 4 reports, citing a leaked IMF memo dated May 14."
*  *  *
As a reminder, here is the IMF procedure for a default and a matrix which outlines what a missed IMF payment would mean in terms of accelerated payment rights for Greece's other creditors:

(Barron's) L’Oréal CEO Jean-Paul Agon Sells Beauty to the World

L’Oréal CEO Jean-Paul Agon Sells Beauty to the World

Jean-Paul Agon, chief executive of French cosmetics and beauty giant L’Oréal, is used to smoothing out wrinkles. He’s good at handling other crises, too.
Agon was running L’Oréal’s German business in 1994 as Germany struggled with reunification. He headed Asian operations in 1997, when the Thai baht’s collapse provoked a regional economic meltdown. He took charge of L’Oréal USA in the summer of 2001, just before the Sept. 11 terrorist attacks. “It became a bit of a joke that wherever I sent him, there was going to be a crisis,” says the former CEO, Lindsay Owen-Jones, who quickly identified his flexible young protegé as a candidate for the executive suite.


Agon, 58, laughs off the notion that he was unlucky. “On the contrary, it was good training,” he says in an interview at L’Oréal’s headquarters, in a former soap factory in a Paris suburb. “Challenges make you discover strengths or talents or skills that you didn’t even think you had.”
Agon’s battle scars left him especially well prepared to assume L’Oréal’s helm in 2006, on the eve of the worst financial and economic crisis since the 1930s. While most companies retrenched, L’Oréal (ticker: OR.France) continued to invest in its dozens of makeup, skin-, and hair-care brands, which range from Maybelline, Garnier, and L’Oréal in the mass-market category to prestige names such as Lancôme, Yves Saint Laurent, Giorgio Armani, and Kiehl’s. The strategy, which Agon first tried successfully during the Asian downturn, paid off handsomely, helping L’Oréal secure its position as the world’s largest beauty-products seller based on annual revenue, ahead of Unilever (UL) and Procter & Gamble (PG).
L’OREAL’S SPENDING ON research, development, and marketing also laid the foundation for rapid growth, and positioned the company to potentially double its customer base in coming years. Sales are forecast to rise almost 14% this year, to 25.6 billion euros ($29.12 billion) while earnings could climb 13%, to €3.6 billion, or €6.30 a share. Analysts are projecting earnings of €6.80 a share in 2016, on revenue of €27 billion.
In Agon’s first year on the job, L’Oréal netted €1.8 billion, on revenue of roughly €16 billion.
L’Oréal’s sales are geographically diverse, with Western Europe accounting for 36% of annual revenue; North America contributing 25%; and Asia-Pacific, 21%. The remainder comes from Eastern Europe, Latin America, Africa, and the Middle East. The company claimed 12.5% of the global market for cosmetics and beauty products in 2014.


L’Oréal Luxe, which sells prestige makeup, skin-care, and fragrance brands through department stores, is doing particularly well. It generated more than a quarter of last year’s revenue, or €6 billion.
Customers haven’t been the only beneficiaries of L’Oréal’s growth. The company’s shares, which fetched €170.15 late last week, have returned an average of 14% a year for the past decade—and 21.7% in each of the past five years, including dividends. L’Oréal pays an annual dividend of €2.70 a share, for a yield of 1.6%. At a ratio of 27 times this year’s expected earnings, the stock looks expensive, but investors have been willing to pay up for consistent performance.
L’ORÉAL WAS FOUNDED in 1909 by Eugène Schueller, a French chemist of German descent. Schueller developed hair dyes from chemical compounds and produced a range of colors that were more subtle than other dyes then available. Parisian hairstylists were persuaded to use the dyes, originally called Aureale, which evolved into L’Oréal, and Schueller hired representatives to sell them through France. Even before the outbreak of World War I, use of L’Oréal’s dyes had spread through Europe and even reached the U.S.
As more women joined the workforce after the war, they had more money to spend on beauty care, and the company flourished. But Schueller’s reputation was tarnished during World War II, when he founded and funded an extreme right-wing group that collaborated with the Nazis and supported France’s Vichy government. After the war, L’Oréal hired some of the movement’s members as executives, and Schueller’s only daughter, Liliane, married one.

Liliane Bettencourt, as she is known, inherited her father’s stake in the company on his death in 1957. L’Oréal went public in 1963, but Bettencourt retained a majority holding. In 1974, fearful that the French government might nationalize the company, she exchanged almost half of her stake for shares in Swiss foods giant Nestlé (NESN.Switzerland).


The arrangement provided a firm foundation for L’Oréal that has lasted more than 40 years. The two companies began to unwind the cross-shareholding last year when Nestlé sold an 8% stake in L’Oréal back to the French company. Nestlé’s stake currently stands at 23%, while the Bettencourt family own 33%. Liliane, 92, has no role in the company, although her daughter, son-in-law, and grandson sit on the board.
“L’Oréal’s success is linked to the excellent relationship that has always been between management and the Bettencourt family,” says Agon.
Continuity of management arguably has been as important as a stable shareholder base. Agon is only the fifth CEO in L’Oréal’s history. He says he has no plans to retire soon—his mother worked until she was 85—and that his eventual successor will be a L’Oréal insider.
The company’s mission, based on product innovation, quality, and safety, hasn’t changed much, either. “I strongly believe that I am continuing the legacy of my predecessors on the essentials, but the essentials are almost 90% of what is important,” Agon says.
The CEO sees his role as ensuring that L’Oréal adapts to a changing world. He hopes to make his mark by building a robust digital presence for the company, and promoting environmental sustainability.
Agon believes that digital technology can transform the relationship between consumers and brands, not only by offering a sales platform but also educating potential buyers about products before they go shopping. They need help understanding how to use the products, too, he says, noting that L’Oréal has responded by providing online tutorials.
Agon is equally committed to reducing L’Oréal’s carbon footprint—by 60% from 2005 levels. The company also aims, by 2020, to create new products using raw materials only from sustainable sources.
AGON GREW UP in Paris, where his father was a manager in the pharmaceuticals industry and his mother worked as an architect. An only child, he attended the prestigious École de Hautes Études Commerciales, or HEC Paris, a business school whose alumni include French President François Hollande and numerous captains of French industry. Agon studied finance, mainly to please his parents, but it didn’t interest him. “I was terribly bored,” he says. “I didn’t find it intriguing at all.”
He discovered a passion for marketing, however. “My head teacher said, ‘Jean-Paul, you are definitely very gifted [in] marketing,’ because, for every finance case, I found a marketing solution,” Agon says.
He was recruited from business school in 1978 by L’Oréal, and chose the job, in part, because of the opportunity for international travel. As a child, he had decorated his bedroom with maps of the different countries he dreamed of visiting, including Brazil, India, and China. A globe sits next to his desk in his office.
Agon’s passion for travel is well known among his colleagues. When traveling for business, he likes to visit countries for a minimum of a week to soak up the culture. Owen-Jones recalls a year in which Agon spent most of his time on the road, but used two weeks’ vacation at the end of it to take his family on a long-distance holiday. “I said, ‘What, are you crazy? Haven’t you taken enough planes already?’ ”
L’Oréal also gave Agon an opportunity to put his marketing talents to good use. The company is the world’s third-biggest spender on advertising, behind P&G and Unilever.
Sipping coffee, Agon suddenly grows animated when the subject turns to marketing beauty products. “If you do marketing for food products or detergents, it is pretty rational,” he says. “With beauty, you have some rationality, but you have a large part of emotionality. It is very cultural. It is linked to the image you have of yourself, or of the community. It is very much about imagination, intuition, taste.”
CHARLES REVSON, THE founder of Revlon (REV), called beauty products “hope in a jar.” Behind that hope is technology, a key focus of L’Oréal’s endeavors. L’Oréal spends 3.4% of annual revenue on research and development—equivalent to €760 million last year. Out of a workforce of 78,600, it employs 3,500 people in advanced research, focusing on areas such as the biology of skin and hair, and stem cells.
R&D has taken L’Oréal in some unlikely directions. In 1970, it acquired control of the French pharmaceuticals company Synthélabo to advance its research into dermatology. After several drug-industry mergers, that investment has evolved into a 9% stake in the pharmaceuticals giant Sanofi (SAN.France), a holding that is now worth more than €11 billion. L’Oréal views the investment as financial, and it could be sold if the company needs the money to pursue other opportunities. “We will be ready to use it if we need it,” Agon says.
Acquisitions have been an important part of L’Oréal’s growth story. Of the company’s 25 international brands, only the L’Oréal brand was developed in-house. The company’s acquisition strategy is simple, if not always easy to achieve. “The L’Oréal way is to acquire small businesses that can become very big,” Agon says.
Agon points to Maybelline as an example. It was a Memphis, Tenn.–based, predominantly U.S. brand with $300 million in annual sales when L’Oréal bought it in 1996. Under the L’Oréal umbrella, it has become the No. 1 cosmetics brand worldwide, with estimated sales of about €2 billion.
Agon sees strong potential for other L’Oréal brands, including Redken, in hair care; Kiehl’s, in skin care; and the makeup line Urban Decay. Brands like these could help push the company into new markets and realize Agon’s ambitious goals. L’Oréal sells six billion products a year, and had an estimated one billion customers in 2009. The CEO is aiming for two billion customers in the next 10 to 12 years.
THE FIRST BILLION were mostly in Europe and North America, with some customers in Latin America and China. The next billion, he says, will come primarily from Asia, Latin America, and Africa. Their needs will be different, and will force L’Oréal to adjust its R&D, marketing, and production. The company must adapt products from region to region to cater to different skin and hair types, climates, traditions, and beauty regimes.
“You can’t just invent a [beauty] product and sell the same product to everyone,” says Agon. “It is not like Coca-Cola. You cannot just globalize one product, one taste, one performance.”
Yet, while the breadth and scope of L’Oréal’s business have changed, Agon reckons that the company has changed little in the past half-century. “It is much bigger,” he says. “We are at a different stage of the adventure. But it is still the same adventure with the same goal, the same vision, and the same ambition.”

(Barron's) Deal or No Deal, Syngenta’s Worth a Bet


Deal or No Deal, Syngenta’s Worth a Bet

It isn’t too late to bet on Syngenta, despite a run-up in the share price following a $45.75 billion preliminary bid by Monsanto.


A higher, knockout blow from Monsanto would hand Syngenta shareholders a big windfall. But if that doesn’t materialize, investors in the Swiss specialty-chemicals company still can profit from its promising plan to generate savings and efficiencies.
Syngenta’s stock (ticker: SYNN.Switzerland) has jumped 22% since May 8, when the company reported it had rejected an unsolicited proposal. Syngenta said the approach undervalues its prospects and underestimates the execution risk, primarily from regulators. The proposal from Monsanto (MON) is worth 449 Swiss francs ($491) a share, with 45% in cash and the remainder in shares. It’s a good opening gambit, but a bid about 10% higher, with a larger portion of cash, might be needed to soften Syngenta’s resistance.
At Friday’s close around 400 francs, Syngenta’s shares are about 11% below the indicative price. An offer in the region of 500 francs ($547) would represent about 25% upside. Syngenta’s American depository receipts, listed under the ticker SYT, were trading above $87 in New York at midday Friday.
Deutsche Bank analysts believe a deal is likely. They argue that, for Monsanto, a transaction would be 6% accretive to earnings per share in the first year and 13% in the second, owing to potential synergies, lower Swiss corporate taxes (Syngenta’s tax rate is 16%, versus Monsanto’s 28%), and low interest rates.
ASSUMING AN OFFER PRICE of 500 Swiss francs and including 100% of potential synergies, estimated at $1 billion, or 7% of Syngenta’s sales, this would imply a multiple of 17 times forecast 2016 earnings, and a ratio of enterprise value (stock-market value, plus net debt) to next year’s earnings before interest, tax, depreciation, and amortization of 12 times. “We believe this would be acceptable” for Monsanto, Deutsche Bank analysts say.


Financials aside, logic for the deal is compelling. A merger would link Syngenta’s market-leading crop-protection products, such as herbicides, insecticides, and fungicides, and Monsanto’s dominant position in agricultural and vegetable seeds.
There is some overlap, which could stir regulators. Importantly, Syngenta’s market share in seeds is about 8%. Adding that to Monsanto’s 25% might set off alarm bells. But Monsanto could divest Syngenta’s seeds business to dispel competition worries. Bayer (BAYN.Germany) and BASF (BAS.Germany) are unlikely to mount competing bids for Syngenta, due to financing and antitrust issues, but they could be interested in its seeds business.
Syngenta, based in Basel, doesn’t break out the performance of its seeds business, but Credit Suisse estimates that its enterprise value exceeds $8 billion.
Syngenta’s recent results have been unimpressive. It reported a 6% rise in sales last year, to $15.13 billion (it reports in dollars), but its performance was hurt by a dip in crop prices caused by high production, and by unfavorable exchange rates, particularly in Russia and Ukraine. Profit was $1.62 billion, or $17.60 a share. For 2015, earnings are projected at $1.51 billion, or $16.36, on $14.41 billion of revenue. However, estimates for 2016 are much more bullish, with profit climbing to $1.8 billion, or $19.52 a share, on $15.12 billion in revenue.
That is partly due to a plan to optimize the cost structure and enhance efficiencies. Savings this year are targeted at $265 million. That figure could be $1 billion by 2018. That’s why, if the Monsanto deal fails, some investors will stick with Syngenta.


James Laing, deputy head of pan-European equities at Aberdeen Asset Management, likes Syngenta’s exposure to emerging markets, which accounts for more than half its revenue; the breadth of its portfolio; and its pipeline of exciting new products. “This bid just highlights the value embedded within it,” says Laing. (He has no target price, but says 400 francs doesn’t represent fair value.)
An investment in Syngenta could yield a bumper harvest.
AN M&A DEAL THAT COULD BE A TOUGHER to push through is the possible combination of food retailers Royal Ahold (AH.Netherlands) and Delhaize (DELB.Belgium).
The companies confirmed May 12 that they are in preliminary discussions that could lead to the creation of a grocer with 54 billion euros ($61.56 billion) in annual sales and leading positions in the Netherlands, Belgium, and the east coast of the U.S. Ahold, which owns Stop & Shop, could offer a 30% to 40% premium to Delhaize’s share price before the talks were disclosed. Delhaize operates Hannaford and Food Lion.
That translates to a takeout price of €94 and €101. Based on Delhaize’s closing price Friday of €83.58, that would represent a premium of 12.5% to 20.8%. Its ADRs (DEG) were trading above $23.
A merger seems to make sense, with analysts at Société Générale calculating potential synergies at €540 million, and value creation at €11 billion. But they caution that the most recent deals in the sector have been disappointing.
Delhaize’s stock was discussed favorably in this column last year (“Time to Put Delhaize in Your Cart,” April 7). It is up about 60% since then, but it still could have a way to go. Investors might want to make space in their shopping carts.

>>>Paulson & Co discloses updated portfolio positions in 13F filin

Paulson & Co discloses updated portfolio positions in 13F filing: New position in AIG, CSC; increased stake in ACT, TMUS; cut stake in CVC, S; closed position in BABA, EQIX

Highlights from 2015 Q1 filing as compared to 2014 Q4 filing:
  • New positions in: AIG (~14.6 mln shares), CSC (~4.2 mln) OUT (~3.3 mln), SGYP (~2.1 mln)
  • Increased positions in: ACT (to ~5.6 mln shares from ~1.6 mln shares), TMUS (to ~23.8 mln from ~15.3 mln), TSU (to ~6 mln from ~3.3 mln), VRX (to ~2.1 mln from ~0.5 mln)
  • Decreased positions in: CVC (to ~8.4 mln shares from ~13.7 mln shares), FCH (to ~3.3 mln from ~5 mln), BPOP (to ~4.7 mln from ~7.6 mln), S (to ~5.2 mln from ~30.1 mln)
  • Closed positions in: BABA (from ~1.9 mln shares), EQIX (from ~1.8 mln), GFI (from ~3.9 mln), SBGL (from ~1 mil)

>>> Soros Fund Management discloses updated portfolio positions in

Soros Fund Management discloses updated portfolio positions in 13F filing: New positions in CRC, ENTR, PHM; Increased position in CSOD, NUAN, CY; Decreased position in AAL, QTM, ROVI; Closed position in TEVA, PSX

Highlights from 2014 Q3 filing as compared to 2014 Q2 filing:
  • New positions in: CRC (~10.7 mln shares), CVE (~2.8 mln), ENTR (~8.1 mln), GLPI (~1.2 mln), NE (~2.4 mln), PHM (~3.2 mln)
  • Increased positions in: CSOD (to ~72.5 mln shares from ~23.4 mln shares), CY (to ~14.2 mln from ~2.9 mln), DTV (to ~0.5 mln from ~0.3 mln), EBAY (to ~3.3 mln from ~1 mln), LSCC (to ~7.1 mln from ~1.8 mln), NUAN (to ~163.8 mln from ~84.4 mln)
  • Decreased positions in: AAL (to ~1.6 mln shares from ~3.3 mln shares), EXTR (to ~1 mln from ~4 mln), QTM (to ~85.3 mln from ~131 mln), ROVI (to ~0.8 mln from ~217.9 mln)
  • Closed positions in: AGNC (from ~0.4 mln shares), AXTA (from ~0.6 mln), NRG (from ~1.8 mln), PSX (from ~1.2 mln), TEVA (from ~4.9 mln), VRX (from ~0.6 mln)

>>> Weekly Update

Weekly Market Update: Turbulent Markets Draw More Stimulus, May Delay Fed Liftoff


Equities wove in and out of negative territory this week and bond markets were choppy, even as the DJIA and S&P500 quietly tested all-time highs. China started the week off with more stimulus - the PBoC cut rates for the third time since November. The US April retail sales and industrial production reports were quite soft, lending ammunition to participants saying the Fed would not be raising rates this summer. ECB President Draghi dismissed criticisms of his €1.1 trillion QE program on Thursday, reiterating that the ECB would buy the full allotment under the program and insisting that the plan would help prepare the Eurozone for higher rates. Greece made minor concessions to its partners on asset sales, but little movement is apparent in negotiations. For the week, the DJIA edged up 0.4%, the S&P500 added 0.3% and the Nasdaq rose 0.9%.

There were two April US economic reports with disappointing numbers but positive revisions to the March data: advance retail sales and industrial production. Retails sales were pretty weak, with total sales and the control group (which feeds into the GDP reading) unchanged, widely missing expectations. Meanwhile, the March headline sales figure was revised from 0.9% to 1.1% and the control was revised from 0.3% to 0.5%. Sales in April were curbed by declines in big-ticket receipts such as autos, furniture, electronics and appliances. The Atlanta Fed lowered its GDPnow rolling Q2 GDP forecast to 0.7% from 0.8% in the wake of the retail sales data. Likewise, industrial production was lower than expected, but the March report was raised to -0.3% from -0.6%. The University of Michigan consumer sentiment index on Friday also disappointed, registering its lowest reading since October and showed inflation expectations are rising.

The doves were out for the Fed this week with Dudley and Williams reiterating data dependence and cautioning again that global markets are sure to have some reaction when Fed rate lift off occurs. Williams also said he agrees with the sentiment expressed by Chair Yellen that equity valuations are quite high.

Negotiations between Greece and its European creditors went nowhere again this week. On Tuesday, Greece made its latest debt payment to the IMF on time, however Athens used €650M in funds from its own IMF account to help meet the €750M obligation, underlining the depth of the nation's cash crunch. First quarter GDP data revealed that the economy has already returned to recession. Finance Minister Varoufakis stepped up his war of words with Eurozone policymakers, saying he wished his country still had the drachma and warning he would not sign any bailout plan that would send his country into a "death spiral."

A return to GDP growth in France and Italy in Q1 helped boost eurozone economic growth in Q1 to +0.4% over the prior quarter and +1.0% on an annualized basis, its best rate in years. As of Q1, all the major eurozone economies are growing, cementing hopes for a real economic recovery. The caveat was Germany, where Q1 GDP was only +0.3% q/q, missing expectations for +0.7% growth. In the UK, the Bank of England cut its 2015 growth forecast from 2.9% to 2.5%, and 2016 from 2.9% to 2.6%, citing higher interest rates, stronger GBP and weaker productivity. EUR/USD took another leg up on the better data, rising from lows of 1.1140 to test three-month highs around 1.1450 on both Thursday and Friday. Traders note that after trading down five big figures from 1.1000 to 1.0500 in the first two months of the year, EUR/USD is making measured moves upward to test five big figures up from 1.000.

The bond selloff claimed victims in Asia this week, as a Japanese 10-year bond auction drew bids for 2.24x, the lowest in six years. Yields on German and US paper spiked again in the first half of the week, but appeared to reverse after testing some key technical levels. The 10-year UST touched 2.370% on Tuesday, its highest level since last November, but had dropped more than 20 basis points to trade around 2.15% on Friday. The 10-year bund peaked at 0.735% on Wednesday, but had dropped over ten basis points to 0.62% by Friday. Analysts continue to argue over the causes, with many citing poor liquidity and the stampede out of long positions as the best candidate for the moves in yields.

Shares of major US retailers lost ground this week after the April retail sales report and some mixed-to-poor quarterly reports. The biggest loser was Kohls, with shares off nearly 14% on the week after the firm missed revenue expectations, after reporting tepid comp growth and refraining from offering guidance. Fellow department store name Macys lost ground after missing both top- and bottom-line expectations and seeing comps go negative.

Cisco reported a modest y/y gain in revenue in its third quarter, with both earnings and revenues just a hair above expectations. The firm's fourth-quarter guidance was right in line. In his last quarterly conference call as CEO, John Chambers addressed emerging technologies head on, claiming that Cisco was slimming teams and speeding up development to compete with software-defined networking startups. Chambers also shot down rumors that Cisco was considering a takeover approach for security specialist FireEye.

By a narrow margin, DuPont investors rejected Nelson Peltz's attempt to get on the board at the annual meeting, the first failure for an activist campaign mounted by Trian Fund Management. The outcome was a victory for DuPont Chairman and CEO Kullman, who refused to settle the proxy fight by giving a board seat to Peltz. Trian had splitting DuPont into two companies.

China continues to ramp up its stimulus. Over the weekend, the PBoC cut key rates for the second time this year. The easing - a 25bp cut in deposit and lending rates to 2.25% and 5.10%, respectively - was expected after the downbeat trade numbers last week. The cut was further justified by April industrial production data missing expectations by a tenth of a percent, and retail sales also disappointing and touching a multi-year low (at +10%). Money supply and credit figures were similarly worrisome, as M2 slowed to a record low of 10.1% and new loans missed expectations by over CNY100B at just over CNY700B, a 4-month low. Expectations for steady easing helped the Shanghai Composite to another 2.4% rise for the week, despite the profit-taking on Friday attributed to strong demand for a new batch of IPOs.

>>> Carl Icahn discloses updated portfolio positions in 13F filing;


Carl Icahn discloses updated portfolio positions in 13F filing; Increases stake in CHK, FDML, MTW, VLTC (which was already known); Closes stake in TLM (co was bought out)

Highlights from 2014 Q3 filing as compared to 2014 Q2 filing:
  • Increased positions in: MTW (to ~10.6 mln shares from ~4.5 mln shares), FDML (to ~17.5 mln from ~121.1 mln), VLTC (to ~4.7 mln from ~0.7 mln), CHK (to ~73.1 mln from ~66.5 mln)
  • Closed positions in: TLM (from ~76.1 mln shares)