Richard McGuire’s Marcato Capital has made two important filings with the SEC in recent days, both of which we’ll cover in this article. Firstly, the fund has filed its 13F for the end of the fourth quarter filing period, disclosing its equity portfolio at the close of that quarter. Secondly, in a 13D filing on Friday, it revealed a letter sent to the board of Sotheby Sothebys (NYSE:BID), which we’ll address first.
Richard (Mick) McGuire founded San Francisco-based Marcato Capital Management in 2010, after previously being a protégé of Bill Ackman’s while working as a partner at Pershing Square. McGuire, still in his late-30’s, is considered a rising star in the industry, having been crowned the Emerging Fund Manager of the Year in 2013 by Institutional Investor. McGuire primarily invests in small and mid-sized businesses in the consumer and financial sectors, with 65% of his equity portfolio devoted to the two at the end of 2014.
Let’s start with the Sothebys (NYSE:BID)’s filing, in which McGuire revealed sending a letter of disgruntled disappointment to Sotheby’s Lead Independent Director, Dominic De Sole, on February 20. That letter referenced Sotheby’s February 13 announcement in which it was stated that “there will be no return of capital to shareholders at this time”.
As McGuire’s letter states, despite multiple attempts to engage the board in ways to increase productivity and shareholder returns through Sothebys (NYSE:BID)’s capital, they have seen little or no returns at all from much of it. McGuire characterized the situation as willful neglect by the Finance Committee of the board and company management. McGuire asserted that the first order of business of the new CEO should be to replace current CFO Patrick McClymont, as well as repurchase $500 million worth of stock.
The latest letter is a continuation in a long-running battle between shareholders and management, which resulted in the ouster of Sothebys (NYSE:BID)’s CEO William Ruprecht late last year, after a six-month proxy fight with Third Point’s Dan Loeb. McGuire was also reportedly offered a board seat at one point, but refused when Sotheby’s did not commit to capital allocation.
Let’s move on to McGuire’s top picks now, as of the end of 2014, beginning with Bank of New York Mellon Corp (NYSE:BK). The world’s largest custody bank remains his top pick for the second straight quarter, after he opened a huge new position on it with 17.77 million shares in the third quarter. McGuire added just under 234,000 shares to that in the fourth quarter, as shares enjoyed a strong 4.75% gain to close out the year.
However, it’s been a different story for Bank of New York Mellon Corp (NYSE:BK)’s shares in 2015, as they’re down 3.62% year-to-date as the company works to resolve lawsuits against it, alleging that it defrauded clients out of millions of dollars on the foreign exchange trading market. The lawsuits are expected to cost the bank close to $600 million. Fund ownership increased to 50 in the fourth quarter among the funds we track, from 42 at the close of the third quarter, with Nelson Peltz’ Trian Partners being the largest shareholder among those funds.
Lear Corporation (NYSE:LEA) moves into second place, moving past NCR Corporation (NYSE:NCR), despite the two holdings remaining unchanged from the previous filing. Lear, the maker of automotive seating and electrical systems, has benefited from an increase to its sales of premium seating, as sales of luxury cars have likewise begun to trend upwards.
Lear Corporation (NYSE:LEA) has enjoyed a very strong run of late, gaining 13.51% over the fourth quarter of 2014, and already appreciating another 12.48% in 2015. All told, Lear is up just over 140% since the beginning of 2013, with McGuire having initiated his position just before that 2+ year run, in the fourth quarter of 2012, making it an extremely lucrative one for him.
He is currently the largest shareholder of Lear among funds we track, with 3.63 million shares. Alexander Mitchell’s Scopus Asset Management, and Steve Cohen’s family office Point72 Asset Management, each held just under 1.0 million shares of Lear at the close of 2014.
Lastly is Goodyear Tire & Rubber Co (NASDAQ:GT) which also leapfrogged NCR Corporation (NYSE:NCR) into third on the back of its own strong quarter, which saw it soar 26.5%. McGuire’s position in Goodyear was also unchanged over the course of the fourth quarter, at 12.44 million shares, and he is also the largest shareholder of the company among funds we track. Unfortunately, it’s not a position McGuire has held for over two years, missing out on the stock’s glorious 2013, in which it gained 79.97%, as he initiated his position in the first quarter of 2014.
Despite a strong earnings report on February 11 however, Goodyear Tire & Rubber Co (NASDAQ:GT) is down 5.04% year-to-date, as those earnings were slashed by 6% in estimates prior to their release. It has enjoyed a strong February however, making up most of the losses incurred in January, and there’s a lot to like about the stock, including a 1-year forward P/E of just 8.05.
David Tepper, despite axing many US-based stocks from his portfolio last quarter, remains a large shareholder of Goodyear Tire & Rubber Co (NASDAQ:GT), with 10.24 million shares as of December 31, 2014, though he did decrease his position by 10% during the quarter. Ric Dillon’s Diamond Hill Capital is another large shareholder, with 6.87 million shares at the end of 2014.
Disclosure: None
