Bares Capital Management is an investment advisory firm founded by Brian Bares in 2000. Mr. Bares is known for his strategy of focusing on small- and micro-cap companies, a strategy which led to 53% gross returns in 2010. Its micro-cap equity portfolio was also ranked as the 7th-best performing over a 40-quarter period ended March 31, 2014 by Thomson Reuters, with a net of fees annual return of 14.07%. Bares Capital’s portfolio mostly consists of inefficiently priced stocks, and the fund maintains a concentrated pair of portfolios (one mid/large-cap, one small-cap), which contain between 8 and 12 stocks at most times. At the end of the second quarter, Bares Capital’s overall U.S equity portfolio had a value of over $1.40 billion spread across 18 holdings according to its latest 13F filing with the SEC.
Mr. Bares has a degree in Mathematics and has authored a book titled “The Small Cap Advantage: How Top Endowments and Foundations Turn Small Stocks into Big Returns”. Brian Bares thinks traders must read “as many annual reports as possible” to get the real pulse of the market. Bares Capital manages portfolios for institutional accounts, and usually provides services to high-net-worth individuals, pension and profit sharing plans, family offices, charitable organizations, foundations, endowments, and trust programs.
While Bares Capital’s small-cap portfolio is closed to new investors, we can now see for ourselves how the successful money manager was positioned in small-cap equities as of June 30. In this article, we’ll run through the fund’s top-five small-cap holdings and see how they’ve performed this year.
Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that imitating the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012 (read more details here).
National Instruments Corp (NASDAQ:NATI)
– Shares Owned by Bares Capital (as of June 30): 2.31 million
– Value of Bares Capital’s Holding (as of June 30): $63.40 million
During the second quarter of 2016, Bares Capital acquired 53,861 shares of National Instruments Corp (NASDAQ:NATI), increasing its holding in the company by 2%. Last month, National Instruments reported second quarter earnings that surpassed analysts’ estimates on the bottom-line, but fell short of the top-line targets. For the third quarter, National Instruments expects EPS to be in the range of $0.18-to-$0.34, while the consensus stands at $0.30. On the revenue front, National Instruments Corp (NASDAQ:NATI) expects sales of $291 million-to-$321 million, while the consensus is calling for $316.7 million. Shares of the company have dipped by 2.27% this year. David Blood and Al Gore’s Generation Investment Management owns around 3.83 million shares of the company as of June 30.
Interactive Brokers Group, Inc. (NASDAQ:IBKR)
– Shares Owned by Bares Capital (as of June 30): 2.62 million
– Value of Bares Capital’s Holding (as of June 30): $92.62 million
Bares Capital boosted its stake in Interactive Brokers Group, Inc. (NASDAQ:IBKR) by 16% during the quarter ended June 30, with the stake now accounting for approximately 6.6% of the value of the hedge fund’s equity portfolio. On Friday, Interactive Brokers notified its clients that starting September 1, only Eligible Contract Participants (ECPs) will be allowed to open leveraged forex positions with the firm. Generally, Eligible Contract Participants are individuals or companies with assets valued at over $10 million. The decision comes amid increasingly tough conditions in the retail industry and limitations put in place by the Securities and Exchange Commission on dealers who are not registered as Retail Foreign Exchange Dealers (RFEDs). The company controlled approximately 7% of the retail forex trade in the U.S. market. It’s unclear whether Interactive Brokers Group will try to strike a deal with another platform to send its clients there or whether it will try to entice those clients into equities trading on its own platform instead. Shares of Interactive Brokers Group have slid by 18% in 2016. Allan Mecham and Ben Raybould’s Arlington Value Capital owns more than 2.1 million shares of Interactive Brokers Group, Inc. (NASDAQ:IBKR) as of the end of June, up by 11% during the second quarter.
On the next page we’ll check out three more small-cap stocks that have Bares Capital’s attention.