Bernard Horn and Polaris Capital Management’s Diversified Equity Portfolio

As the 13F season carries on, we continue to track the top hedge funds’ filings. In this article, I will take a look at Polaris Capital Management’s top three stock picks for the second quarter of 2014.

This hedge fund, managed by Bernard Horn, disclosed ownership of more than 45 long equity positions, worth more than $443 million. Its holdings are quite diversified, same as its top picks, so let’s examine them in order to elucidate if any of them deserve further research, and could be considered as attractive investment options.

Teva Pharmaceuticals TEVA Drugs

Over the second quarter, Polaris placed its largest bet on a newcomer to its equity portfolio: Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA). This $48.5 billion market cap company develops, produces and markets generic drugs in all treatment categories. The fund acquired 1.53 million shares of Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) over the quarter. This position, worth more than $80 million, accounts for more than 18% of the equity portfolio’s total value.

Another fund that seems quite bullish about Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) is Sean Cullinan’s Point State Capital, the company’s largest hedge fund shareholder of record, which boosted its exposure to the company by 35% over the first quarter and now owns approximately 12.7 million shares.

Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)’s stock trades at only 16.8 times the company’s earnings, at a huge discount to the 53x P/E industry average, while the company boasts industry leading margins and returns on both equity and assets, so one can understand why hedge funds are betting on it.

BHP Billiton plc (ADR) (NYSE:BBL) came in second, just like in the previous quarter, even in spite of a 21% reduction in the fund’s exposure to the stock. Polaris now owns 1.02 million shares of this $71.85 billion market cap diversified natural resources company. The stake at BHP Billiton plc (ADR) (NYSE:BBL) is worth more than $67 million, accounts for more than 15% of the fund’s total equity portfolio, and makes Polaris the largest hedge fund shareholder of record of the company.

Other major hedge funds with significantly smaller stakes in BHP Billiton plc (ADR) (NYSE:BBL) are Israel Englander’s Millennium Management, which last disclosed ownership of 153,134 shares –as of March 31, and Ken Griffin’s Citadel Investment Group, with 10,666 shares of the company.

Last in this list is another newcomer: Infosys Ltd ADR (NYSE:INFY), a $33.32 billion market cap provider of business consulting, technology, engineering and outsourcing services. Between April and June, Polaris purchased about 1.2 million shares of Infosys Ltd ADR (NYSE:INFY), with a market value of approximately $64.5 million.

Ken Fisher’s Fisher Asset Management also seems quite bullish on Infosys Ltd ADR (NYSE:INFY). Over the quarter, the fund upped its stake in the company by 74%, and now owns 2.71 million shares, worth more than $145 million.

Disclosure: Javier Hasse holds no position in any stocks or funds mentioned.

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