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A Look At Smart Money Three Latest Moves

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In new filings with the U.S. Securities and Exchange Commission, Kelly Cardwell’s Central Square Management, James E. Flynn’s Deerfield Management, and Keith Meister’s Corvex Capital disclosed latest moves involving PICO Holdings Inc (NASDAQ:PICO), Flamel Technologies S.A. (ADR) (NASDAQ:FLML), and Signet Jewelers Ltd. (NYSE:SIG), respectively. Central Square Management, in an amended filing, disclosed a letter it sent to PICO Holdings’ board of directors, while Deerfield Management and Corvex Capital, in their separate filings, reported raising their positions in Flamel Technologies and Signet Jewelers, respectively.

We believe that paying attention to hedge funds’ moves is important. Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 53 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. a 48.7% gain for the S&P 500 Index (see the details here). That’s why we believe investors should pay attention to what hedge funds are buying.

Let’s take a look at Central Square Management’s move. According to the filing, the investor holds 1.24 million shares of PICO Holdings Inc (NASDAQ:PICO), equal to 5.4% of the company’s common stock. The stake represents a decrease from 1.35 million shares the fund held previously. In its letter, Central Square reiterated its concerns and opinion regarding the direction of PICO Holdings, as well as commented on the appointment of Eric Speron of First Foundation Advisors to the company’s board. Central Square states that Mr. Speron’s appointment is entirely reactive to the investor’s involvement in the company and represents “a belated and underwhelming token attempt to appease shareholders.”

Kelly Cardwell
Kelly Cardwell
Central Square Management

“We call on you to immediately engage with us to agree on a procedure for seating each of Anthony Bergamo, James Henderson and Daniel Silvers to the Board. We believe each of these three highly-qualified individuals are best-in-class proven stewards of shareholder capital and together they have the right mix of skill sets and experience to help the Board address PICO’s challenges and opportunities with an open mind and a keen sense of urgency,” the letter added.

PICO Holdings Inc (NASDAQ:PICO) operates through four segments: Water Resource and Water Storage Operations; Real Estate Operations; Agribusiness Operations, and Corporate. Shares of the company lost 45.54% during 2015. Another shareholder of the company is Chuck Royce’s Royce & Associates, which cut its position in the company during the third quarter by 21% to 1.55 million shares.

On the next page, we’ll discuss the other two filings.

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