In the world of hedge funds there are thousands of money managers. Many members of the financial press speciously shrug off this group, but a select group of hedgies is actually worth retail investors’ time. At Insider Monkey, we’ve found that by focusing on the best stock picks of the best hedge fund managers, it is possible to beat the market by a significant margin.
Our small-cap strategy outpaced the market by 18% a year for more than a decade, and since we began sharing this with the public last fall, our picks have beaten the S&P 500 index by 22.5 percentage points in only 5.5 months (learn how you can capitalize on these dominant strategies here).
With that in mind, it’s also important to do a fund-by-fund analysis of hedgies’ favorite stock picks, and the latest round of fourth quarter 13F filings from the SEC lets us do just that. Let’s take a look at Robert Jaffe’s Force Capital, which is a U.S.-centric long/short equity fund that specializes in deep fundamental research, predominantly on middle-market companies in financial, consumer and industrial sectors (here’s Jaffe’s full equity portfolio).
Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS) is Jaffe’s No. 1 stock pick and was a new position for the hedge fund manager last quarter. Since spinning off from Sears Holdings in mid-October, shares of the appliance and hardware-focused retailer have returned nearly 50%. In the typical spin-off fashion, Sears Hometown and Outlet was undervalued from launch, and despite their rapid appreciation, they still trade at a 13% discount to their industry’s average book valuation. While there’s nothing here for income-seeking investors, the multiples are splendid, as are Jaffe’s company in SHOS. At the end of Q4, Murray Stahl, Steven Cohen and Chuck Royce were also long.
First Industrial Realty Trust, Inc. (NYSE:FR) and iStar Financial Inc. (NYSE:SFI) sit at the No.’s 2 and 3 spots in Jaffe and Force’s equity portfolio, and interestingly, the hedgie was downsizing his stake in both REITs by about 20% last quarter. While it’s impossible to know just what merited this selling—it could have simply been profit taking—it’s worth pointing out that each company has had a significant 2013. Since the start of the year, First Industrial has gained 13.5% while iStar is up 23.9%, and both trade relatively cheaply at the moment.
Just how cheap?