Sandler Capital Management had a difficult 2013, with the gains they made on long positions getting dragged down by the pummeling the fund took on its short positions. Managing director Andrew Sandler blames qualitative easing and the high liquidity environment for protecting declining companies with slow growth from short sellers.

Sandler welcomes tapering “with open arms” and says that the end of multiple expansion will force the market to start differentiating between stocks again.

“After roughly an 18-month period of negative alpha generation from stock selection, our longs have outperformed our shorts by a 2-to-1 margin over the last two months, leading the Fund to outperform the S&P 500 by about 3 percentage points over that period. We are cautiously optimistic that this could be the beginning of a fruitful market environment for our strategy,” writes Sandler.

Overall, returns for the various Sandler Associates classes ranged from 5.13% to 5.66% for the year, compared to the S&P 500’s total 2013 return of 32.38%. Sandler Capital Management has $401 million in assets under management and $1.64 billion total strategy assets in its long/short equity products. Sandler’s portfolio had positions with about 240 issuers and the largest position made up 3.9% of assets.

sandler performance attribution 0214

sandler sector exposure 0214

Sandler’s top buys for 2013

Sandler Capital Management’s three biggest net buys (excluding ETFs) were Tripadvisor Inc (NASDAQ:TRIP), Bayerische Motoren Werke AG (ETR:BMW) (FRA:BMW), and Helmerich & Payne, Inc. (NYSE:HP).

Sandler wrote that Tripadvisor Inc (NASDAQ:TRIP) is “a unique internet asset with high barriers to entry and strong usage trends,” and that he likes the way the company is taking advantage of consumers’ move to mobile apps. He argues that Bayerische Motoren Werke AG (ETR:BMW) (FRA:BMW) is currently undervalued because investors are underestimating the potential of its upcoming line of electric cars, and that Helmerich & Payne, Inc. (NYSE:HP), which manufactures drilling rigs, is well positioned to benefit from US shale oil and generally has a healthy balance sheet.

Sandler’s top sells for 2013

The funds three biggest net sales (again excluding ETFs) were Google Inc (NASDAQ:GOOG), Discovery Communications Inc. (NASDAQ:DISCK), and Verisk Analytics, Inc. (NASDAQ:VRSK).

Sandler’s Google Inc (NASDAQ:GOOG) sale was tactical, and he expects the fund to continue making opportunistic trades on Google stock in the future. Similarly, the fund sold Discovery stock because it had reached their price target, not because of any underlying weaknesses or signs of trouble.

Sandler initially sold part of its position in Verisk Analytics, Inc. (NASDAQ:VRSK) because the stock hit their price target, but later closed its position completely. “During the fourth quarter, we sold the rest of our position as the company reported less visibility for its high growth healthcare business and we became concerned about weaker pricing growth in its insurance vertical,” writes Sandler.