In this article, we will look at the most significant positions in small-cap companies of billionaire Howard Marks of Oaktree Capital Management. This is very important, because mimicking the activity of hedge funds’ top large-cap picks is not the best strategy for investors, since our tests of a portfolio consisting of 50 of the most popular of those stocks among hedge funds underperformed the market by seven basis points per month between 1999 and 2012. On the other hand, their most-popular small-cap picks have consistently shown the ability to generate huge returns, helping an investor to beat the market as our small-cap strategy has, returning 132% from the end of August 2012 through March 11, 2015.
The Los Angeles-based Oaktree Capital was founded in 1995 by Mr. Marks along with a group of individuals who had previously worked together at TCW Group. The fund specializes in alternative investments and maintains an emphasis on distressed debt, corporate debt and convertible securities. Oaktree Capital Management disclosed an equity portfolio valued at some $9.36 billion at the end of 2014. The equity portfolio is mainly invested in Consumer Discretionary (21%), Financial (17%) and Health Care (17%) stocks. The fund’s last 13F filing showed that a greater percentage of the fund’s portfolio was committed towards consumer discretionary and financials stocks, while being lowered towards stocks in the industrial and energy sectors.
Among the 10 largest holdings from Oaktree Capital Management’s equity portfolio (which amass 49.60% of the total portfolio value), some companies have market capitalizations under $2.5 billion. Let’s take a look at three of them, with the companies being Star Bulk Carriers Corp. (NASDAQ:SBLK), First Bancorp (NYSE:FBP) and Eagle Bulk Shipping Inc (NASDAQ:EGLE). Two of these companies belong to the dry bulk shipping market, an increasingly challenging one.
At the end of 2014, the fund held 51.23 million shares of Star Bulk Carriers Corp.(NASDAQ:SBLK), having no activity during the fourth quarter, the value of the stake amounting to $336.10 million after the stock plummeted by 38.7% during the October-December period. The position accounted for 3.59% of the fund’s equity portfolio. Star Bulk Carriers Corp. (NASDAQ:SBLK) is a shipping company, which provides seaborne transportation solutions in the dry bulk sector worldwide. On March 19, the firm reported revenue of $65.7 million for the fourth quarter of fiscal 2014 and a loss of $8.1 million in the same period. Along with this, on a per-share basis, the company reported a loss of $0.08.
Star Bulk is on its way to becoming the largest U.S.-listed dry bulk shipping company. It owns 66 dry bulk vessels, consisting of 19 Capesize, 4 Post-Panamax, 19 Amsarmax, 9 Panamax, 4 Ultramax, 10 Supramax vessels and one Handymax vessel. Moreover, last year the company bought 34 vessels from Excel Maritime, a struggling dry bulk owner. Furthermore, the dry bulk operator, which happens to be controlled by Oaktree, has entered into definitive contracts for the construction of thirty-two vessels at high-quality shipyards in Japan and China. These vessels are made with fuel-efficient specifications.
Monarch Alternative Capital, led by Michael Weinstock, held a stake of 6.16 million shares of Star Bulk Carriers Corp.(NASDAQ:SBLK) valued at $40.42 million, making it the second-largest shareholder among the hedge funds that we track.
First Bancorp (NYSE:FBP) is next on the list, with Oaktree Capital Management also having no activity in this stock over the fourth quarter, maintaining a stake of 41.84 million shares valued at $245.62 million at the end of 2014. The position accounted for 2.62% of the fund’s equity portfolio. Meanwhile, the stock price rose by about 23.6% in the fourth quarter of 2014 and it has risen by about 30% in the last 12 months.
FirstBank, the second largest bank in Puerto Rico and a subsidiary of First BanCorp, announced the acquisition of Doral Bank in alliance with Banco Popular de Puerto Rico, in which FirstBank acquired 10 branches. The transaction also includes about $600 million in deposits and a mortgage loan portfolio of $300 million. On March 12, the firm revised its earnings for the fourth quarter and year ended December 31, 2014, which were previously announced during a February 5, 2015 earnings release. The bank posted earnings of $330.8 million for the fourth quarter and on a per-share basis the company reported earnings of $1.56 per diluted share. The revised net income for the year ended December 31, 2014 amounted to $392.3 million, or $1.87 per diluted share.
Emanuel J. Friedman’s EJF Capital was the second-largest shareholder of First Bancorp (NYSE:FBP), holding 4.60 million shares, down by 42% from the previous quarter. The value of the stake amounted to $26.99 million. Another prominent investor with a large position in terms of percentage of its portfolio was William Black’s Consector Capital, with a position of 2.98 million shares, representing 8.02% of its equity portfolio.
Finally, Eagle Bulk Shipping Inc (NASDAQ:EGLE) completes the list, with Mr. Marks holding a position of 14.3 million shares at the end of 2014. The fund’s stake had a market value of $209.74 million and accounted for 2.24% of Oaktree’s equity portfolio. Since October 16 when it emerged from its financial restructuring, through to the end of the year, Eagle Bulk Shipping Inc (NASDAQ:EGLE)’s stock lost about 7.2%, while Mr. Marks didn’t have any activity according to the latest filing. Additionally, Eagle Bulk Shipping Inc (NASDAQ:EGLE)’s shares have lost over 37.0% of their market value in 2015.
Earlier this month, the company’s chief executive officer, Sophocles Zoullas, abruptly resigned from all positions at the company and will be succeeded as CEO by Stanley Ryan, a member of the board. Apart from Mr. Marks, the largest shareholder of Eagle Bulk Shipping Inc (NASDAQ:EGLE) was Joshua Friedman and Mitchell Julis’ Canyon Capital Advisors, as it reported holding 4.74 million shares valued at $69.47 million, an increase of 5,280% to its position during the fourth quarter.
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