Edward Lampert’s ESL Investments is more concentrated than ever, having trimmed its stake in one of its largest holdings.
The Bay Harbor, Florida–based hedge fund firm’s entire portfolio is concentrated in just four U.S.-based equities. One of these is AutoNation, the country’s largest auto dealership and still ESL’s largest holding even after the firm disclosed that it unloaded nearly 3.8 million shares of the company, reducing its total stake to 26.1 percent.
Shares of AutoNation are up 20 percent year to date. Of the 3.8 million shares Lampert sold, nearly 2.58 million shares were distributed to an ESL affiliate, CBL Partners. Nearly 1 million of the remaining shares were sold by Lampert out of his personal holdings. The remaining shares were sold by ESL.
The sales took place between September 9 and October 30 for between $49.38 and $53.23 per share. The distribution took place on October 28. This is the fourth time this year ESL and Lampert have sold shares of AutoNation.
Perhaps unfortunately for Lampert, his largest position is Sears Holdings Corp., which accounted for nearly half of ESL’s nearly $3 billion stock portfolio at the end of the second quarter. Sure, the retailer’s stock is up 41 percent this year, in part on expectations that it will continue to sell its top-performing stores and sell or take public profitable businesses such as Lands’ End. But investors shouldn’t get too comfortable with the company’s year-to-date gains, which can easily evaporate if investor sentiment toward Sears suddenly changes.
Gap, ESL’s third-largest holding, is up 31 percent this year. Sears Hometown and Outlet Stores, ESL’s fourth-largest holding, which accounts for less than 10 percent of the equity assets, is down about 12 percent this year.
If you do the math, this works out to a mid-20 percent gain before fees for ESL, making it one of the top-performing hedge fund firms this year. You also have to assume Lampert does not have investments in other vehicles, including very low-return cash instruments or short positions that have lost money.
Of course, Lampert’s performance is highly sensitive to the movements of Sears’ stock. This is especially true as he continues to trim his stake in AutoNation. And despite this year’s gains, half of ESL’s money is invested in a shrinking has-been retailer that is customer challenged, has no cachet and is seemingly worth more dead than alive.
