Silver Arrow Partners, L.P., a New York-based hedge fund led by Raji Khabbaz, has just issued its latest quarterly letter to investors. According to the information contained within it, the fund has returned 1.04% during the second quarter of 2015. The interesting thing about the returns is that the short bets of Silver Arrow generated 111 basis points (1.11%), while the long positions returned less than half of that, a mere 50 basis points (0.50%). At the same time, the total amount of capital invested in the long ideas of the fund equaled 88.6% by the end of June, while only 26.5% of available capital was allocated towards short selling. As you can see, the performance of short positions of Arrow Capital turned out to be much more effective on a “per unit of capital” basis; therefore, in this article we would like to draw your attention to the top five bearish bets of the firm, which are in Coach Inc (NYSE:COH), Continental Resources Inc (NYSE:CLR), Nucor Corporation (NYSE:NUE), Urban Outfitters Inc (NASDAQ:URBN) and Oracle Corporation (NYSE:ORCL).
The fund’s letter had this to say about its short positions and philosophy when it comes to shorting stocks: “At the end of the quarter, the short portfolio consisted of 16 individually shorted companies, with an average position size of 1.7% of capital. Our shorts have smaller average position sizes than our long investments by design. A higher degree of diversification on the short side helps us manage and contain certain risks unique to short selling, specifically the possibility that the ability to borrow shares to short may rapidly decline, thus increasing the likelihood of a “short squeeze” or imposition of egregious short borrowing rates.”
We don’t just track the latest moves of funds and stocks at Insider Monkey. We are, in fact, more interested in their 13F filings, which we use to determine the top 15 small-cap stocks held by the funds we track. We gather and share this information based on 16 years of research, with backtests for the period between 1999 and 2012 and forward testing for the last 2.5 years. The results of our analysis show that these 15 most popular small-cap picks have a great potential to outperform the market, beating the S&P 500 Total Return Index by nearly one percentage point per month in backtests. Moreover, since the beginning of forward testing in August 2012, the strategy worked brilliantly, outperforming the market every year and returning 139%, which is more than 80 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
Coach Inc (NYSE:COH) is an $8.54 billion market cap luxury accessories and lifestyle collections provider. Over the second quarter of the year, Silver Arrow was generally right about the downward direction of the stock price, as it slipped by 16.47% on lower store count and exchange rate swings. According to the latest 13F filings, Ariel Investments, led by John W. Rogers, slashed its position in Coach Inc (NYSE:COH) by 31%. After those adjustments, the fund held 1.01 million shares worth $42 million.
The next on the list is the crude oil and natural gas explorer, Continental Resources Inc (NYSE:CLR). The stock mostly traded sideways from April to June, and closed the quarter down by 2.9%, generally following the dynamics of oil prices. Ken Griffin’s Citadel Investment Group headed the list of investors with long position in the stock of Continental Resources Inc (NYSE:CLR), holding 1.08 million shares valued at $46.98 million.
It is not a secret that many of the commodity-engaged companies are living through tough times, and Nucor Corporation (NYSE:NUE), a steel manufacturer, is not an exception. Over the second quarter of 2015 the equity of this company has depreciated by 7.28%. Yet, on the positive side is that on July 23, Nucor Corporation (NYSE:NUE) beat analysts’ estimates for EPS, reporting $0.39 per share, or $0.13 higher than expected. However, the sales of the company were nonetheless down by a significant 17.6% on a year-over-year basis. Phill Gross And Robert Atchinson’s Adage Capital Management finished the first quarter of the year with 1.88 million shares of Nucor Corporation (NYSE:NUE) worth $89.17 million, after a 298% increase to the position.
The share price of Urban Outfitters Inc (NASDAQ:URBN) disappointed its investors (or at least those with long and not short positions) with a loss of 23.39% during the second quarter of 2015. Some analysts believe that the stock is traded at a very steep discount to its fair price, with the consensus mean target price now stands at some $40.59, offering around 17-18% of upside to the current price. Again, Ken Griffin’s Citadel Investment Group did not find any competition in the size of the position in this particular stock among the funds we track. The fund owned around 3.32 million shares of Urban Outfitters Inc (NASDAQ:URBN) with a market value of $151.67 million after the first three months of the year.
Lastly, computer and software giant Oracle Corporation (NYSE:ORCL) proved to be another shrewd short-selling move for Silver Arrow Partners, as it lost around 6.6% of its value. Its closely watched cloud service performance did not live up to expectations recently, since the company reported a 6% dollar sales loss on a year-over-year basis. Eagle Capital Management, headed by Boykin Curry, held 44.72 million shares of Oracle Corporation (NYSE:ORCL) valued at $1.93 billion.
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