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Learning from hedge funds: CF Industries' 70% outperformance

Learning from hedge funds: CF Industries' 70% outperformance (Part 1 of 7)

Learning from hedge funds: CF Industries’ 70% outperformance

Learning from hedge funds

One of the best ways to learn to be more successful in investments is to follow what reputable hedge funds’ movements. Every quarter, hedge funds are required to disclose positions they’ve held at the end of the respective quarter through 13F filings—a document that’s required by the SEC for institutional investment managers with more than $100 million in assets. While 13Fs are released much later than the reported period, investors can use them as a starting point for learning the reasons behind those moves, which can be used for future purposes.

CF Industries' OutperformanceEnlarge GraphCF Industries’ outperformance

CF Industries Holdings, Inc. (CF) is one of the largest nitrogen fertilizer producers publicly traded. Because nitrogen fertilizers are commodities, the company’s earnings and share prices are largely dependent on market prices for fertilizers such as ammonia, urea, and UAN. So CF Industries should perform similar to its pureplay peers such as Terra Nitrogen Company, L.P. (TNH) and CVR Partners, LP (UAN). But since mid-2013, CF Industries had outperformed its peers quite significantly.

Hedge funds jumped in

Several hedge funds initiated positions in CF Industries during the second quarter of 2013. Soros Fund Management, for example, had 34,308 shares of CF Industries at the end of June 30, valued at ~$5.88 million. From June 30 to September 30, the fund raised its investment in the fertilizer producer to 361,652 shares, which was valued at $76.25 million at the end of September 30.

During the second quarter of 2013, Dan Loeb’s Third Point hedge fund—one of the best funds out there that picks about 30 stocks in its portfolio—also disclosed an even larger position size of 845,000 shares at the end of June 30.

Other hedge funds that had significant exposure to CF Industries Holdings included Renaissance Technologies with 1,110,550 shares, ValueAct Capital with 1,000,000, D. E. Shaw, and Adage Capital Management. While each employs different strategies from the other, they are considered to be some of the best hedge funds out there.

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