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Top Small and Mid-Cap Picks of Shah Capital (One Has Gained 226% This Year)

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North Carolina-based activist hedge fund Shah Capital Management recently disclosed its U.S equity portfolio as of the end of March, via a 13F filing submitted with the Securities and Exchange Commission. Shah Capital Management was founded in 2005 by Himanshu H. Shah, an ex-Vice President and Senior Portfolio Manager at UBS, and focuses primarily on special situations and deep value investing. According to the fund’s latest filing, its U.S equity portfolio was worth $119.34 million at the end of March and consisted of 13 long positions. The filing also revealed that during the first quarter, the fund added two stocks to its concentrated portfolio and sold out of its position in one holding. Since Shah Capital Management primarily invests in small and mid-cap stocks, we will take a look at its top five small and mid-cap holdings as of March 31.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

Himanshu H. Shah
Himanshu H. Shah
Shah Capital Management

#5 VimpelCom Ltd (ADR) (NASDAQ:VIP)

– Shares Owned by Shah Capital Management (as of March 31): 886,995

– Value of Holding (as of March 31): $3.78 million

First up is VimpelCom Ltd (ADR) (NASDAQ:VIP), in which Shah Capital Management reduced its holding by 2% during the first quarter. Though shares of VimpelCom Ltd (ADR) (NASDAQ:VIP) have rallied by almost 17% so far this year, they are still trading near the same levels they were around time that Shah Capital Management initiated its stake in the company, during the final quarter of 2014. In February the company settled a probe with the SEC and regulators in the Netherlands, concerning its business dealings in Uzbekistan. As part of the settlement, VimpelCom agreed to pay $795 million while its Uzbekistan subsidiary Unitel entered a guilty plea with the U.S Justice Department. VimpelCom and CK Hutchison Holdings announced a merger of their respective Italian subsidiaries, Wind Telecomunicazioni and 3 Italia, last August. However, this merger has come under intense scrutiny from European regulators of late, forcing the companies to extend the timeline for the merger. John W. Moon‘s Moon Capital almost doubled its stake in VimpelCom to 3.25 million shares during the final quarter of 2015.

#4 Seadrill Ltd (NYSE:SDRL)

– Shares Owned by Shah Capital Management (as of March 31): 1.45 million

– Value of Holding (as of March 31): $4.78 million

Seadrill Ltd (NYSE:SDRL) was one of the new additions to Shah Capital Management’s equity portfolio during the first quarter. Owing largely to the oil rout, the offshore drilling company has lost 90% of its market capitalization since November 2015. However, the stock saw a big spike in March after rumors started floating around that the company’s Chairman and President, Norwegian billionaire John Fredriksen, was raising cash to fund a restructuring of the company. Thanks to that spike, Seadrill Ltd (NYSE:SDRL)’s stock is currently trading up by over 40% year-to-date. On April 28, the company announced that it has sold its remaining 8.2% stake in Malaysian oilfield service company SapuraKencana for approximately $195 million. According to the company’s press release, the proceeds from the sale will be provide additional liquidity and be used for general corporate purposes. On April 24, analysts at Canaccord Genuity reiterated their ‘Sell’ rating on the stock. With ownership of nearly 5.00 million shares of the company, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was the largest shareholder of Seadrill Ltd among the funds in our system at the end of 2015.

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 Shah Capital Management’s top three small and mid-cap holdings are analyzed on the next page.

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