Highland Capital Management’s small cap equity fund nearly tripled the gains of the S&P 500 in 2016. Michael Gregory, the chief investment officer of Highland’s alternative investors unit, placed big bets on energy stocks in 2016, and those bets resulted in 31.6 percent in returns. Highland Alternative Investors manages about $55 million in funds and oversees the fund with Highland Capital Management’s chairman and CEO, James Dondero.
Gregory is now focusing his attention on the once out-of-favor health care sector. In 2016, health care was the only sector that did not post a gain. Gregory believes health care is in for a “tremendous rebound,” and he is putting his money where his mouth is by placing 25 percent of Highlands’s small cap equity fund assets into the health care sector. Gregory states that the current opioid epidemic in the United States will lead to a huge bounce back in health care as more insurance companies start to address the problem.
Both Gregory and Dondero also like the multifamily real estate sector. The primary focus is on real estate investment trusts like NexPoint Residential and Realty Trust Inc. Gregory also likes the energy sector once again, and he and Dondero point out one pipeline operator with a dividend yield of 4.08 percent. Western Gas Equity Partners has strong sponsorship and the company is highly capitalized. Gregory and his Highland Small-Cap Equity Fund received four stars out of five from the mutual fund rating company Morningstar. Highland acquired the equity fund from GE Asset Management in 2010.