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Hedge Fund Letter Consensus
Q1 2017

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The goal of this newsletter is simple: collect as many hedge fund letters to investors as I can get my hands on and find consensus topics of discussion.

A total of 52 letters were used for this report. Unfortunately this is down from Q4 2016's total. Many hedge funds only release annual investor letters and I still need to find more letter sources. Fifty-two letters is too small a number to extract a real consensus. If you have access to hedge fund letters to investors, please send them in.

Letters are first annotated and undergo natural language processing (NLP) to identity named entities and coreferences (among other tasks) and are then pumped into a text search engine to find consensus topics among all funds. This same text search engine is available to readers to use for possibly finding additional topics of interest. Part of the annotation includes identifying new buys/sells, and existing holdings, fund performance, cash allocation, and key opinions.

Why Hedge Fund Letters?

Hedge funds with over $100 million in investable assets in the U.S. are required to filing quarterly 13F holdings reports to the SEC. These filings provide great insight and should be a part of everyone's research. You can use to get detailed analysis of 13F holdings and find consensus picks.

13F Limitations: 13F filings have some limitations however. For starters 13F filings aren’t due until 45-days after the quarter close date. Letters to investors are typically more timely than this. 13F filings are limited to long positions in US equities, call/put options/convertible notes and ADRs. So no disclosure of cash positions, international holdings, shorts, real estate, distressed debt, etc. You are missing the complete picture of a fund’s true investment exposure.

Hedge Fund letters don’t necessarily include all investments either, but oftentimes big stakes are disclosed in the letter along with the fund's rationale for choosing them. Hedge Fund Letters also include opinions from the manager on the overall direction of the market and on new investments.

These are the best investors in the world. Reading their letters gives us a glimpse into their thinking and methodology. We can leverage hedge funds' vast resources and knowledge without the associated cost.

the ETF industry has hijacked traditional indexation and distorted it to a dangerous degree. - Horizon Kinetics

Active U.S. equity funds manage $3.6 trillion and passive instruments are about to catch them at $3.1 trillion.

Financial vehicles using leverage to purchase a shrinking pool of real assets—sound familiar

But when the indexes turn down, will this be the unhappiest hour?

The current weapon of mass destruction is also a three-letter word: ETF (exchange-traded fund)

While the indices have all rallied substantially, the fundamentals have not kept pace - FPA Capital

Studies of mutual fund investors consistently show that the tendency to sell last years loser to buy last year's "winner" can seriously detract from long-term results.

Actively managed funds generally have higher expense ratios than index funds or ETF’s, so mathematically, to the extent active and passive managers both, as groups, produce average results, the passive group will outperform the active group over time by the amount of the expense differential.

As long as human nature does not change, we believe that there will always be opportunities for value investors to buy mispriced securities. [indexation] This structural phenomenon caused extreme distortions during the tech stock bubble, which ended in 2000 [indexation]. - Weitz Investment Management

active managers as a whole will underperform the average market return by the amount of their fees.

the relative success of passive vs. active investing has been cyclical - Euclidean

Relatedly, are active managers dead in this period of late bull market cycle of passive dominance? No, but maybe comatose. - Wedgewood Partners


A continuing topic of discussion. Is the outperformance of passive vs. active investments cyclical? Are we seeing another bubble forming?

Small Caps Overvalued?

Several funds expressed difficulty in finding any undervalued small-caps to invest in.

Price to value ratios are higher for Small Cap than our other strategies and cash levels are rising.

we have minimized risk in the portfolio at a time of dangerous valuation levels in small cap stocks. - Vulcan Value Partners

There is simply not enough liquidity in the market for companies with smaller market capitalizations. - FPA Capital

If I were to speculate on the origin of the relative weakness of small cap stocks, I believe it is the result of the tremendous post-election rally that small cap stocks had after the election. - Blue Tower Asset Mgmt

Small-capitalization stocks, a traditional alternative, are no longer a practical alternative.

They simply cannot absorb a sufficient portion of the equity pool; they cannot be a functional alternative - Horizon Kinetics

Is an aggregate P/E ratio of 115, as it is today, on the Russell 2000 small-cap index really justified?

Clearly, for small cap stocks, the valuations are higher today and the fundamentals are weaker than they were at the prior two stock market tops. - Crescat

there is still room for the market to move higher, perhaps substantially so

this bull could have several more years to run

The stock market is not as cheap as it used to be, but is also not as expensive as it is likely to get, in my opinion - Bill Miller

I continue to believe that we have entered the next leg of what may be a very powerful bull market cycle, after nearly two years of sideways price action.

Deregulation, tax reform, and the replacement of Obamacare are all ambitious goals that could ignite an economy that is very eager to move higher. -Mott Capital

we have pushed back our recession forecast to 2019 from 2018. - KKR
While we recognize that we are in the late stages of an economic cycle, experience has taught us not to miss the end of an expansive period. Third Point


Despite the long duration of the current bull market, quite a few fund managers think we still have further to go.

vs Bear

Some managers however think the end is near. More than one noted a similarity to the 2000 tech bubble.

High rates of growth, and the productivity that drives it, are likely distant memories from a bygone era.

Equity markets are priced for too much hope, high yield bond markets for too much growth, and all asset prices elevated to artificial levels that only a model driven, historically biased investor would believe could lead to returns resembling the past six years, or the decades predating Lehman. Bill Gross

They [US Investors] haven’t been this bullish since January 2000.

Previous market cycles show that the time to be bullish is after a market, sector or a stock has made a big decline, not a long advance. - Euclidean

The market value of all U.S. stocks, as measured by the Federal Reserves corporate equities level, relative to GDP, was 125% as of October 2016. Adding the market appreciation since then, that ratio is approaching the record set by the Internet Bubble in early 2000. - Horizon Kinetics

The other notable, indeed, historic attribute of this Great Bull Market has been the lack of downside volatility. The last episode of volatility of any length occured all the way back in the fall of 2011. Since then, the dozen or so periods of heightened downside volatility have been measured in weeks not months or quarters. - Wedgewood Partners

Stock markets top out when valuations are extended, when corporate earnings and the economy appear strong, and when measures of consumer, business, and stock market sentiment are strong. These conditions are currently in place.

At late-cycle market tops, investor and advisor sentiment is typically extremely bullish. Such is the case today, indicating that investors are already fully long the market.

overall insider selling compared to buying, as highlighted by Barrons recently, has been surging. Such is reminiscent of the tech bubble peak in 2000.

Equities and a broad range of credit instruments are highly at risk of a correction in todays global markets.

the current expansion has already gone on 65% longer than the average expansion and is due for a downturn, particularly now that the Fed is raising rates at a high rate-of-change and that we are in the first year of a Republican presidency. - Crescat

Statistics from S&P suggest that volatility and dispersion are at the lowest point in at le ast ten years. This means that overall stocks are moving up more closely together with less differentiation regardless of earnings growth, company stability, financial strength or valuation. - Polen Capital

The subprime auto lending space has been under significant pressure so far this year.

we currently appear to be in the ‘Decreasing Leverage’ phase and can expect a return to higher profitability soon. - Blue Tower Asset Management

We are short auto- and transport-related stocks: CarMax, Lithia Motors, AutoNation, O Reilly Automotive, AutoZone, Avis, Advanced Auto Parts, Ryder, FedEx, United Parcel Service. - Crescat

we are concerned about credit deterioration in certain fixed income markets, including the auto loan market in the U.S.

at some point credit deterioration in many sectors, auto-related markets in particular, could turn out to be worse than the consensus is now expecting.

subprime auto originations are running at just under $50 billion per quarter on a trailing 12-month basis, which is approaching the record pace of subprime auto-lending we saw during the 2005-2006 period.

in a world awash in liquidity, Private Credit is one of the few markets in which we transact where demand still seems to be handily outstrripping supply

this robust growth in subprime originations is happening at a time when delinquencies in auto loans are increasing and used car prices (which proxy for recovery values) are decreasing.

There are several ways to hedge this risk, [auto credit market] but we like investment grade CDX as a hedging vehicle at current levels. -- KKR

we believe the US auto cycle is flashing “yellow, - Greenwood

The subprime auto lending space has been under significant pressure so far this year. It has been hit by a perfect storm of several factors: rising interest rates, increased competition between lenders, declining used car prices, and rising defaults by borrowers.

According to a report by Morgan Stanley, loans given to borrowers with a FICO score of below 550 now make up 32.5% of all subprime auto loans. Five years ago, that number was 5.1%. - Blue Tower Asset Management

Auto Sector

This was discussed last quarter as well. Subprime auto-lending is looking more and more like the next bubble.


All things Trump

US weapons manufacturers should be direct beneficiaries of Trump’s fiscal policy. - Vltava Fund

Based on our study of prior post-World War II Democratic-to-Republican regime changes, there was a stock market crash and recession in the first year of the new Republican presidents term every time. Crescat

But in the end, will a real estate developer with plenty of assets and an apparent interest in being very rich really promote a materially higher-yield policy at the Fed?

Trump is likely to settle for a moderate reduction in corporate tax rates this year after bouncing off the infinitely complex task of a full redo of the tax code.

Corporate activity should pick up as President Trump's tax plans are detailed and enacted - Third Point

President-elect Trump seems poised to attack two key overhangs, tax complexity and over-regulation

As a result [Trump Policies], we have boosted both our growth and inflation forecasts during the 2017 and 2018 periods. - KKR

It [Revlon] also remains an obvious takeover candidate that would likely yield a significant valuation premium in the event its controlling shareholder, Ron Perelman, elected to sell the company. - Mittleman Bros
we continue to find more opportunities outside of the U.S. - Longleaf Partners
The oil service industry remains in the early innings of our expectation of a multi-year recovery. - Wedgewood Partners
Bonds look to have entered a long bear market whose only bright spot is that it is likely to be a benign bear market, at least to start - Bill Miller

we expect the trend towards deregulation as well as the trend towards fiscal spending over monetary stimulus to favor some of the value securities currently owned by the hedge fund community

hedge funds tend to do better when volatility picks up

The U.S. dollar remains in a bull market.

we maintain our forecast that the Federal Reserve lifts short-term rates just two times in 2017 - KKR

I expect interest rates to stay low for a very long time to come particularly in Europe

In Italy, the banking crisis is an accident waiting to happen - Absolute Partners

Even without the Vienna Agreement, its becoming clearer that oil inventories worldwide are drawing down. - Open Square
There is a risk of inflation catching the Fed flat-footed, but we see this surfacing later in 2018 or 2019, if at all - Third Point
Gold remains a long-term position with a thesis that global fiscal and monetary policies remain very risky. - Greenlight

Global Market Predictions

Random sector and global economic predictions

Complete Results


Performance for Quarter

Performance YTD

Cash Allocation



Barnes and Nobles Education (BNED)
CDI Corp (CDI)
Chesapeake Energy
Civeo Corp. (CVEO)
Conduent (CNDT)
Contura Energy
CVS Health Corporation
Delphi Automotive
Drive Shack, Inc. (DS)
Edwards Lifesciences
FRAC Sand Miners
Google (GOOGL)
Honeywell International Inc.
Huon Aquaculture (HUO)
LiLAC Group (LILA)
Lucara Diamonds (LUC on the Toronto Stock Exchange)
Northern Trust
Palo Alto Networks
Perrigo (PRGO)
S&P Global
TripAdvisor Inc. (TRIP)
UniCredit SpA
Whole Foods Market (WFM)
Williams Sonoma

Added to

Marcus & Millichap (MMI)
Siam City Cement
Tractor Supply Company


natural gas

Sold Out

Annaly Capital Management (NLY)
Bed, Bath and Beyond
Cabot Oil & Gas (COG)
Colony Northstar Inc. (CLNS)
Express Scripts
Franklin Resources
Hanesbrands (HBI)
Hewlett Packard Enterprise
Hilton Grand Vacations
Independence Realty Trust (IRT)
LKQ Corporation
Mead Johnson
Metro Holdings
National Beverage Corp. (NASDAQ: FIZZ)
Park Hotels and Resorts
Sterling Construction (STRL)
Valeant (VRX).

Largest Holding

Only a few funds identify their asset allocation % or mention which holding is the largest in their portfolio.

Apple AAPL
Contura Energy (CNTE)
Microsoft Corp.
NSU: Nevsun
Wells Fargo & Co.
Western Digital.

All Long Holdings

Name# Holding
3M Co.1
Drive Shack, Inc. (DS)1
Aarons Inc.1
ABB Ltd .1
ACI Worldwide Inc.1
Adobe Systems Incorporated1
Advance Micro Devices1
Advanced Auto Parts1
Agco Corp.1
Agro-Kanesho [4955:JP]1
Air Products (APD)1
Airxpanders (AXP)1
Akorn Inc.1
Akzo Nobel1
Alexion Pharmaceutical1
Allergan preferred shares (AGN-A)1
Alphabet3, Inc.1
AmerisourceBergen Corp.1
AngioDynamics [ANGO]1
Anthem Inc.1
Applied Materials, Inc.1
Aptevo Therapeutics (Nasdaq:APVO)1
Arris International PLC.1
Arrow Electronics Inc.1
Asante Inc. [6073:JP]1
Ashmore Group PLC.1
Aspen Insurance Holdings Limited.1
Atlas Iron (AGO)1
Australia & New Zealand Banking Group1
Automatic Data Processing, Inc.2
Avnet Inc.1
Axel Springer .3
Babcock & Wilcox Enterprise.1
Bangkok Bank.1
Bank of Montreal1
Bank of New York Mellon Corp.2
Bank of Nova Scotia1
Bapcor (BAP)1
Barnes and Nobles Education (BNED)1
Berkshire Hathaway2
BOK Financial1
British pound1
Brocade Communications BRCD.1
Cabot Oil and Gas1
Canadian Imperial Bank of Commerce1
CDI Corp (CDI)1
CEB Inc.1
Charles River Laboratories1
Chart Industries GTLS.1
Check Point Software1
Chemours (CC)1
Chesapeake Energy1
Chipotle Mexican Grill (CMG)1
Choice Hotels [CHH]1
Cimarex Energy.2
Cisco Systems4
Civeo Corp. (CVEO)1
Comcast Corp.1
Commonwealth Bank1
Concentric AB.1
Concho Resources1
Conduent (CNDT)1
CONSOL Energy1
Contura Energy2
Cooper Tire & Rubber CTB.1
Core Labs1
CRE Inc. [3458:JP]1
CRH Medical1
crude oil futures1
Cubic Corp.1
Cullen/Frost Bankers1
CVS Health Corp.1
Dana Inc.1
DBS Group Holdings Ltd .3
Delphi Automotive1
Detour Gold1
Deutsche X-Trackers Harvest CSI-300 A-Share1
Devry Education Group.1
Diamondback Energy1
Dollar General Corporation1
Edwards Lifesciences1
Electronic Arts1
EM Systems [4820:JP]1
Envirostar (EVI)1
Everest Re1
ExlService Holdings [EXLS]1
Fannie Mae (FNMA)1
Ferronordic Machines AB Preferred1
FLIR Systems1
Foot Locker.1
Fortescue Metals1
Fossil Group Inc.1
FRAC Sand Miners1
Franco Nevada1
Freddie Mac (FMCC)1
G.U.D Holdings (GUD)1
Galaxy Resources (GXY)1
Gaumont SA (GAM FP)1
Gazprom PAO (OGZPY)1
General Dynamics1
General Electric Co.2
General Motors Company (GM)1
Gilead Sciences1
GlaxoSmithKline .2
Hallmark Financial Services [HALL]1
HCA Holdings.1
Helmerich & Payne.1
Henkel Ag & Co2
Herbalife (HLF)1
Hilton Grand Vacations Inc.1
Hilton Worldwide Holdings Inc.1
Home Capital Group (HCG:TSX)1
Honeywell International Inc.1
Houghton Mifflin Harcourt Co.1
Howard Hughes Corporation (HHC)1
HSBC Holdings.2
Huntington Ingalls1
Huon Aquaculture (HUO)1
Hyundai Motor Co3
Insight Enterprises NSIT.1
Name# Holding
Interdigital Inc.1
International Game Technology (IGT)1
Intralot S.A. (INLOT GA)1
Intuitive Surgical1
Invuity (IVTY)1
iShare MSCI United Kingdom1
iShares China Large Cap1
iShares MSCI Australia1
iShares MSCI China1
Jardine Strategic Holdings (JS SP)1
Jazz Pharmaceutical1
Johnson & Johnson3
Juniper Networks1
K. Wah International1
KB Financial Group (KB)1
KB Home1
Laredo Petroleum1
Lear Corporation LEA.1
Liberty Broadband (LBRDK)1
Liberty Ventures (LVNTA)1
Lindsay Corp. [LNN]1
Lionsgate Entertainment Corp. (LGFA/B)1
Lithia Motors1
Lockheed Martin1
long-dated natural gas futures1
Lucara Diamonds (LUC on the Toronto Stock Exchange)1
Marcus & Millichap.1
MasterCard Inc .1
Matador Resources1
MDC Holdings1
Medikit [7749:JP]1
Melco International1
Merck & Co., Inc.1
Meritage Hospitality1
Metals X (MLX)1
METC [Ramaco Resources (Nasdaq: METC)]1
Munich Re.1
National Australia Bank1
National Western Life Group Inc.1
Navigant Consulting Inc.1
Navigators Group Inc .1
Netcomm Wireless (NTC)1
Nevsun (NSU). OZM1
Newmont Mining1
Nexeo Solutions.1
NextDC (NXT)1
NextEra Energy, Inc.1
Noble Energy Inc.1
Nomad Foods (NOMD).1
Northern Trust1
Northrop Grumman1
O Reilly Automotive1
Oasis Petroleum1
Och-Ziff (OZM)1
Oracle Corp.1
Oshkosh Corp.1
OReilly Automotive, Inc.1
Palo Alto Networks1
Pan American Silver1
PAR Technology Corp (PAR:NYSE)1
Park Hotels & Resorts Inc.1
Parker-Hannifin Corp.1
Patterson UTI Energy.1
PC Connection CNXN.1
PDR Oil & Gas Exploration1
Perrigo (PRGO)1
Pioneer Natural Resources1
Platform Specialty Products Corporation (PAH).1
Qorvo Inc.1
Ramaco Resources (Nasdaq: METC)1
Rangold Resources1
Rmy Cointreau1
Resolute Energy1
Restaurant Brands International (QSR)1
Retail Holdings NV1
Revlon Inc. (REV)1
Rite Aid (RAD)1
RMB futures1
Roche Holding4
Roper Technologies1
Rowan Companies PLC.1
Royal Bank of Canada1
Royal Caribbean Cruises1
Royal Dutch Shell2
Royce Micro-Cap Trust (RMT)1
RSP Permian1
Russia Vectors ETF1
S&P Global2
Sabre Corp.1
Sally Beauty Holdings Inc.1
Savills PLC.1
Siam City Cement,1
Siemens .1
silver futures1
Skyworks Solution (SWKS).2
SM Energy2
Sonic Corp. [SONC]1
Southwest Airlines1
Standard Chartered2
Starbucks (SBUX) .1
Steadfast Group (SDF)1
Stolt-Nielsen Ltd1
Swiss RE ADR.2
Teradata Corporation TDC.1
Terago (TGO:TSX)1
Tesla (TSLA).1
Texas Instruments1
Texas Pacific Land Trust1
The Procter & Gamble Co.1
Toronto-Dominion Bank1
Tractor Supply Company1
TreeHouse Foods1
Trinity Industries TRN.1
Tupperware Brands Corp.1
UniCredit SpA1
United Overseas Bank Ltd .2
United Parcel Service1
Veeco Instruments.1
Verizon (VZ).2
Virtus Investment Partners Inc.1
Vista Outdoor Inc.1
Webjet (WEB)1
Wells Fargo & Co .2
Western Digital WDC.3
WesternOne Inc. (WEQ:TSX)1
Westpac Banking1
Whiting Petroleum1
Williams Sonoma1
Wynn Resorts1
Zurich Insurance Group3


Diamondback Energy
iShares MSCI China
Advance Micro Devices
Advanced Auto Parts
Australia & New Zealand Banking Group
Bank of Montreal
Bank of Nova Scotia
BOK Financial
Canadian Imperial Bank of Commerce
Commonwealth Bank
Concho Resources
crude oil futures
Cullen/Frost Bankers
Deutsche X-Trackers Harvest CSI-300 A-Share
Fortescue Metals
Herbalife (HLF)
iShare MSCI United Kingdom
iShares China Large Cap
iShares MSCI Australia
Laredo Petroleum
Lithia Motors
Matador Resources
METC [Ramaco Resources (Nasdaq: METC)]
National Australia Bank
O Reilly Automotive
Oasis Petroleum
PDR Oil & Gas Exploration
Pioneer Natural Resources
Ramaco Resources (Nasdaq: METC)
Resolute Energy
RMB futures
Roper Technologies
Royal Bank of Canada
Royal Caribbean Cruises
RSP Permian
Russia Vectors ETF
SM Energy
Tesla (TSLA) short
Toronto-Dominion Bank
United Parcel Service
Westpac Banking
Whiting Petroleum

Famous Quotes

Hedge fund managers often include famous and inspirational quotes in their letters.

Below are ones included in 1st quarter letters.

As Mark Twain said, It ain't what you don't know that gets you into trouble. It's what you know for certain that just ain't true.
Edward R. Murrow, a TV news anchor, was one of America's most respected men, and I often make reference to the time he said, Anyone who isn't confused doesn't really understand the situation.
Forecasts create the mirage that the future is knowable. Peter Bernstein
Forecasts usually tell us more of the forecaster than of the future. Warren Buffett
Happiness is wanting what you have And not wanting what you don't have. Shakyamuni Buddha, 500 B.C.
Happiness runs in a circular motion Happiness runs, happiness runs. Donovan, 1969
I can't change the direction of the wind, but I can adjust my sails to always reach my destination JIMMY DEAN AMERICAN COUNTRY MUSIC SINGER, TELEVISION HOST, ACTOR, AND BUSINESSMAN
I don't belong to an organized political party. I'm a Democrat (Republican). Will Rogers, 1935 (circa-2017)
I never think of the future it comes soon enough. Albert Einstein
No amount of sophistication is going to allay the fact that all of your knowledge is about the past and all your decisions are about the future. Ian Wilson (former GE executive)
Sir John Templeton's remark that "bull markets are born in pessimism, grow in skepticism, mature in optimism, and die in euphoria"
The three grand essentials of happiness are: something to do, someone to love, and something to hope for. A. Chalmers
Unilever CEO Paul Polman, who articulates the opportunity "80% of the population of the world will be outside the US and Europe in 30 years' time. Ask yourself, do you want to invest in a company that is well represented in the part of the world where 80% of the population could be, or not?"
We have two classes of forecasters: Those who don't know and those who don't know they don't know. John Kenneth Galbraith
What the New Year brings to you will depend a great deal on what you bring to the New Year. Vern McLellan
History doesn't repeat itself, but it does rhyme. Mark Twain
How wild it was, to let it be. Cheryl Strayed
If you take care of the small things, the big things take care of themselves. You can gain more control over your life by paying closer attention to the little things.- Emily Dickinson
Liquidity is like oxygen: when it's abundant you don't notice, when it's not, it's all you notice .Warren Buffett
Well, that was pretty awesome and I mean that in the worst possible way. Paul Krugman