Silver Capital Management LLC is a New York-based long/short equity hedge fund that primarily invests in small and mid-cap companies. The fund was founded by Bruce Silver in 2000 and currently manages assets worth around $180 million. According to the fund’s latest 13F filing with the Securities and Exchange Commission, its U.S equity portfolio was worth $18.61 million at the end of March, down by nearly one-third from the $27.44 million in holdings as of the end of last year. The filing also revealed that during the volatile first quarter, Silver Capital Management’s equity portfolio had a quarter-over-quarter turnover rate of 102.70%. In this post, we are going to focus on some of the moves that led to that high turnover rate, namely five small and mid-cap stocks in which Silver Capital Management initiated a stake in during the first quarter.
We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).
Hercules Capital Inc (NYSE:HTGC)
– Shares Owned by Silver Capital Management LLC (as of March 31): 40,033
– Value of Holding (as of March 31): $481,000
Let’s start with Hercules Technology Growth Capital, which changed its name to Hercules Capital Inc (NYSE:HTGC) during the first quarter. Shares of the tech-focused business development company (BDC) are currently down by 3% for the year. However, analysts believe that that they are bound to move higher in the coming quarters as Hercules Capital Inc (NYSE:HTGC) is one of the best-positioned BDCs given the current rising interest rate environment. According to the company, a hike of 25 basis points in interest rates will boost its net interest income by $2.00 million. Hercules Capital currently pays a quarterly dividend of $0.31 per share which translates into a lucrative annual dividend yield of over 10%. For its first quarter, analysts projected Hercules Capital to report EPS of $0.28 and total investment income of $41 million, while the company delivered in-line EPS and a slight miss on investment income, which totaled $38.9 million. Bernard Horn’s Polaris Capital held 122,636 shares of the company on March 31.
Jones Lang LaSalle Inc (NYSE:JLL)
– Shares Owned by Silver Capital Management LLC (as of March 31): 5,780
– Value of Holding (as of March 31): $678,000
Real estate services company Jones Lang LaSalle Inc (NYSE:JLL) was another new addition to Silver Capital’s equity portfolio during the first quarter. On April 27, the company reported its first quarter earnings, declaring EPS of $0.82 on revenue of $1.34 billion. For the same quarter of last year, Jones Lang LaSalle pulled in EPS of $0.94 on revenue of $1.20 billion. In early-April, Jones Lang LaSalle Inc (NYSE:JLL) acquired French retail real estate consultant Véronique Nocquet for an undisclosed sum. According to some analysts, after falling significantly to start the year amid investors’ fears of a slowdown in the global real estate markets, shares of Jones Lang LaSalle are now trading at an attractive level. Though the stock has managed to rebound slightly from its February lows, it currently trades down by 32.35% year-to-date.
We’ll look at the top small and mid-cap additions to Silver Capital’s portfolio during the first quarter on the next page.