It was a good year for most fund managers, and a great year for some. With 2013 winding down, it’s clear which gurus had the winningest picks for the year. According to the Score Board of Gurus, the gurus whose stock investments of the past 12 months have gained the most are: John Paulson, Robert Karr, Bruce Berkowitz’s Fairholme Fund, Michael Price and Jean-Marie Eveillard. These investors’ stock picks significantly outperformed both the average hedge fund return through Oct. 31 of 6%, and the year-to-date S&P 500 return of 27.4%.
Twelve-month stock pick average return: 274.63%
John Paulson’s firm had a return to strength this year spite of the steep drop in gold price that affected his gold fund, which represents a relatively small portion of his overall assets managed. His flagship Advantage fund posted a 30% return this year, according to Bloomberg. Paulson originally invested in gold as a protection against a potential loss in dollar value when the Fed began its quantitative easing program.
Paulson’s strategy primarily relies on macro trends. In July, he said in an interview he believed the housing market was beginning a recovery, and that the rate of home construction would increase, which would benefit the overall economy. He also, as a merger arbitrage specialist, has taken advantage of a number of takeover and merger situations over the year, the largest of which was Sprint (S, Financial). He also took a significant stake in Leap Wireless (LEAP, Financial), which AT&T (T, Financial) bought out.
Eight of Paulson’s stocks have had price increases in the triple digits in the past 12 months. His strongest stock was MGIC Investment Corp. (MTG, Financial), which gained 235% over the past 12 months. The company’s stock immediately began to rise after the end of the February, when the company announced that it had settled its Freddie Mac dispute with a one-time charge of $267.5 million.
Paulson bought 17 million shares of MTG in the first quarter of this year, when the price was on average $3.50 per share. On Thursday it is near a two-year high of $8.24 per share.
In the last 12 months, MGIC revenue declined 37% and book value reduced 37% as well. The company is trading with a P/B ratio near a 10-year high at 3.96 and P/S ratio near a five-year high at 1.8.
Paulson’s second best performer, mortgage insurer Radian Group Inc., gained 163% over the past year. He bought 11.55 million shares of this stock in the fourth quarter 2012 and first quarter 2013, when the price was $5 and $8 on average, respectively. Thursday it trades near a three-year high at $14.30 per share.
Radian’s stock also began to swiftly trade up in February when it announced it completed $37.1 billion in new mortgage insurance business in 2012, compared to $15.5 billion in 2011, and reduction of its delinquent loans by 16%.
In the past 12 months, the company’s revenue declined by 36.5% and book value by 24.5%. The company has a P/B ratio near a 10-year high at 2.77 and P/S ratio near a five-year high at 3.1.
Twelve-month stock pick average return: 86%
Robert Karr manages hedge fund Joho Capital, which has a large focus on Japan, China and Korean stocks.
Karr’s best stock, Yelp Inc. (YELP, Financial), gained 237% last year. Karr initiated his Yelp stake in the fourth quarter of 2012, when the price averaged $21 share, and added to it until he owned 1,966,008 shares in the third quarter of 2013, when the price averaged $51 per share.
Yelp, a business review site on the Internet, began trading in March of 2012. In the third quarter, it reported a 68% increase in revenue to $61.2 million and a net loss of $2.3 million, compared to a net loss of $2 million the previous year. Yelp also has a P/B of 22.3 and P/S of 10.9.
Another top gainer in his portfolio, Micron Technology Inc. (MU, Financial), returned 216% in a year. Karr got in on Micron at just the right time. He purchased 8,536,697 shares of Micron in the first quarter of 2013, when the price averaged $8. He has been reducing over the next two quarters and owns 4,828,697 as of third quarter-end, when the price averaged $14.50. Thursday, the price is even higher, at $22 per share.
Bruce Berkowitz’s Fairholme Fund
Twelve-month stock pick average return: 83.35%
Bruce Berkowitz’s mutual fund, the Fairholme Fund (FAIRX), has returned 32% so far this year. His 12-month stock return is flying high primarily because of Fannie Mae and Freddie Mac stocks, which have soared 1,050% and 883%, respectively.
Berkowitz took a stake in the government-sponsored Fannie Mae (FNMA, Financial) common stock consisting of 7,042,000 shares, and bought slightly more Freddie Mac (FMCC, Financial) common shares, in the second quarter of 2013. He had sold both stakes by third quarter-end to purchase more preferred shares.
Berkowitz’s major investment in the mortgage lenders centers on his belief in their systemic national importance. He told CNBC in November: “The housing industry is essential; the assets within the companies have tremendous scale, expertise, people. There are no other group of assets that can perform the job necessary for American housing.”
As of the third quarter, Fannie (FNMAT, Financial) and Freddie preferred stock comprises 7.2% of the Fairholme Fund’s assets, 10% of the Fairholme Allocation Fund’s assets and 6.3% of the Fairholme Focused Income Fund’s assets. As of November, he and a group of investors are attempting to buy outright the two businesses for $52 billion.
Fellow investor Bill Ackman of Pershing Square followed Berkowitz into the common shares in November, taking a 9.98% stake in Fannie Mae and 9.77% stake in Freddie Mac.
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