Forget Cathie Wood, Follow These 3 Hedge Fund Managers

Key Points

• Hedge fund managers buy and sell massive amounts of stocks in concentrated fashion to generate outsized returns for investors.
• Since June 2013, Nelson Peltz’s Trian Fund has had a cumulative return of 435%, trouncing the S&P 500 return by nearly 200%.
• Investors that are fond of technology may find Colin Moran's Abdiel Capital fund to be a good one to follow with the tech sector comprising more than 60% of the portfolio. 
• Christopher Niemczewski of Marshfield Associates boasts a 7.0 Sharpe ratio that is a function of finding big winners without taking on big risk.

If online investment communities had a yearbook, the honor of ‘Most Popular Portfolio Manager’ would go to Cathie Wood. 

The famous stock picker and founder of Ark Invest has a massive social media following — and for a good reason. Her $6 billion Ark Innovation ETF (ARKK) has more than doubled since its October 2014 inception. After a brutal 2022, the fund is off to a fast start this year with growth stocks like Tesla, Coinbase and Roku re-discovering favor. 

Better yet, the endearingly nicknamed ‘Aunt Cathie’ checks all the boxes with ambitious retail investors. She’s a self-made millionaire, loves Tesla and invests aggressively in self-driving cars, robotics, genomics and other futuristic industries. Loyal followers watch ARKK’s every move and simply say ‘I’ll have what she’s having.’

While Ms. Woods’ stellar track record speaks for itself, there are other ways to benefit from the wisdom of star stock pickers. 

Hedge fund managers buy and sell massive amounts of stocks in concentrated fashion to generate outsized returns for investors. They are the epitome of aggressive investing. 

But since participation in a hedge fund comes with high income and net worth requirements, mimicking trades rather than direct investment is the viable option for most. Thankfully, hedge funds must disclose their holdings to the SEC on a quarterly basis via 13-F filings. These forms offer a glimpse into the minds of some of the world’s top investment gurus. 

No, not as timely as investing directly in ARKK, but valuable information nonetheless.

Just as hedge fund managers' strategies vary widely, so do the returns. Some outperform the market by miles while others lag. 

The return and risk profiles of these three ‘hedgies’ are among the best in the business, making them well worth following…even if they don’t make for good memes. 

Nelson Peltz - Trian Fund Management 

Billionaire and activist investor Nelson Peltz co-founded Trian Fund Management 18 years ago. Today the hedge fund has approximately $4 billion in assets comprising companies the firm deems undervalued. Mr. Peltz lobbies for changes that he feels will unlock value for shareholders, such as spin-offs, cost reductions, management shake ups, increased dividends or share repurchases. Often he acquires a seat on the board.

Since June 2013, Mr. Peltz’s Trian Fund has had a cumulative return of 435%, trouncing the S&P 500 return by nearly 200%. It has produced a 40% annualized return over the last three years compared to an 8% return for the popular SPDR S&P 500 ETF (SPY).

And how has the ARKK fund done over the last few years? As of January 31, 2023, the three-year return is -7.5%.

The current Trian Fund is led by the investment management group Invesco, representing over one-fourth of the portfolio. A 20% position follows this in Disney, with which Mr. Peltz ended a proxy fight after the company’s restructuring.

The fund’s third largest position is Janus Henderson Group which, combined with Invesco, has been the subject of a shareholder rebellion against Trian. Along with a 15% stake in Wendy’s, the manager’s top four bets account for 80% of the fund.

Colin Moran - Abdiel Capital Advisors

Not to be confused with the Cincinnati Reds third baseman, Colin Moran founded the private investment group Abdiel Capital. The Manhattan-based hedge fund looks “under the hood” for companies with strong leadership, a thriving corporate culture and the potential for market share gains. It favors companies with recurring revenue streams, such as software developers.

Over the last three years, the fund has been up 52% annually, ranking among the top hedge funds. Much of this relates to Abdiel’s largest holding in HubSpot. Shares of the marketing software company have nosedived from their November 2021 peak but the fund still has a sizable gain in the position.

The latest 13-F filing showed that Mr. Moran added to his HubSpot position last quarter along with Global-e Online and Appian, the fund’s next two largest holdings.

Investors fond of technology may find the fund to be a good one to follow with the sector comprising more than 60% of the portfolio. Shopify, Bill.com, Samsara and Affirm Holdings round out the tech portion of the fund.

Christopher Niemczewski - Marshfield Associates

As co-founder of Marshfield Associates, Christopher Niemczewski hasn’t been afraid to own concentrated positions and it has paid off handsomely. His fund boasts a 44% average return over the last three years and a lofty 21% return over the last 12 months. 

In addition to the top-notch performance, what separates this manager from the pack is an ‘off the charts Sharpe ratio, a measure of portfolio return relative to risk. Mr. Niemczewski’s 7.0 Sharpe ratio is a function of finding big winners without taking on big risk.

The current fund is led by a trio of stocks, each making up roughly 11% of the portfolio — Ross Stores, Arch Capital Group and AutoZone. The fund also owns O’Reilly Auto and TJX Companies, which makes it a good one to follow for investors that like retail stocks. 

Bottom line: Aunt Cathie may forever be ‘Homecoming Queen’ in the eyes of many investors…but there are other stock picking kings and queens worth watching.