Bretton Fund Gives Up On Realogy and Community Health Systems, Sticking With Wells Fargo

Bretton Fund mainly invests in US-based companies to best use its expertise. The fund has diversified portfolio with investments spread across various sectors. According to its recently-released letter to investors covering the third quarter, Bretton Fund said it returned 1.95% between July and September, underperforming the S&P 500’s gain of 3.85%. Over the last year the difference between Bretton’s and S&P 500’s returns is even wider: 4.35% versus 15.43%, respectively.

In addition, according to the letter, Bretton Fund closed its stakes in Community Health Systems (NYSE:CYH) and Realogy Holdings Corp (NYSE:RLGY) during the third quarter. The fund also reported its bullish stance towards Visa Inc. (NYSE:V) and Wells Fargo & Co (NYSE:WFC), and discussed Carter’s Inc. (NYSE:CRI). In this article, we are going to take a closer look at Bretton’s comments and will see the general sentiment among the smart money investors in our database towards the companies in question.

The smart money sentiment is an important metric that can be used to assess the long-term profitability of a stock. While there are thousands of stocks trading daily on the market, taking a look at what hedge funds think about certain companies can narrow down the search significantly. At Insider Monkey, we track more than 745 hedge funds, whose 13F filings we analyze as part of our small-cap strategy. Our research has shown that imitating a portfolio that includes the 15 most popular small-cap stocks among hedge funds can outperform the market by as much as 95 basis points per month on average (see more details).

Community Health Systems (NYSE:CYH)’s stock has lost around 80% so far this year. During the third quarter, Bretton closed its stake in the company at a 74.6% loss, making it the fund’s worst investment so far. The investor pointed out that Community Health Systems’ “revenue could not keep up with its increasing costs” and said that the company made a bad acquisition, probably referring to the 2013 purchase of Health Management Associates. “It’s a humbling mistake and one we hope to never repeat,” Bretton said about its investment. For the third quarter, Community Health Systems (NYSE:CYH) posted a net loss of $0.35 per share, missing the consensus estimate of a loss of $0.34 per share, while revenue of $4.30 billion was $80 million lower than expected.  Among the funds in our database, 33 funds held $280 million worth of Community Health Systems shares at the end of June.

On the other hand, in Visa Inc. (NYSE:V) Bretton Fund initiated a position during the last quarter. Among the funds we track, 118 funds held $9.33 billion worth of Visa’s stock in aggregate at the end of June. In its investment letter to the investors, Bretton Fund stated that Visa Inc. (NYSE:V) is likely to benefit from the ongoing trend of cashless society. The company also recently acquired Visa Europe, which earlier was operating as an affiliate. These factors are expected to move the stock price up in the coming future.

For more information about credit cards, read our article on 11 worst countries for credit card frauds.

During the quarter ended September 30, Carter’s Inc. (NYSE:CRI) had a negative impact of 0.9% on Bretton Fund’s returns, but the fund said that they are not very concerned and that Carter’s stock is expected to pull back. The stock has good long term potential and short term declines are not worrisome. The number of funds from our database long Carter’s Inc. (NYSE:CRI) declined by four to 38 in the second quarter.

Even though Wells Fargo & Co (NYSE:WFC)’s stock is down by 17% year-to-date and lost 6% in the third quarter alond, Bretton is still bullish on the company and said that Wells Fargo’s stock is significantly undervalued. The fund noted the recent issues faced by Wells Fargo and said that even though the fine of $185 million is “immaterial”,the damage to the company’s reputation will be more expensive in the long run.

“Despite this transgression, the vast majority of what Wells Fargo does on a daily basis adds genuine value to its customers: loans for homes, loans for small businesses, financial advice, and checking and banking services. The decline in the stock price hurt the fund by 0.3% this quarter. We believe the stock remains significantly undervalued, though we are closely watching how the company responds to this setback,” Bretton said.

At the end of June, 88 funds from our database held stakes in Wells Fargo & Co (NYSE:WFC) worth about $28.44 billion in aggregate,which represented 11.80% of the company’s outstanding stock.

Finally, Realogy Holdings Corp (NYSE:RLGY), whose stock has lost nearly 37% year-to-date, also got booted from Bretton Fund’s portfolio. The fund eliminated its position in the stock, booking a 22.2% loss. The company is scheduled to announce its quarterly results on November 4 and the market expects EPS of $0.76 and revenue of $1.64 billion.  A total of 39 funds we track held shares of Realogy Holdings Corp (NYSE:RLGY) at the end of June, unchanged over the quarter.

Disclosure: none