A Look At Whitebox Advisors Top Equity Holdings As It Prepares To Close Down Its Mutual Fund Unit

Barely two months after it had announced that its equity head Jason Cross will be leaving the firm after 14 years of service, Minneapolis-based Whitebox Advisors is again in the news after announcing that it would be liquidating all the three mutual funds it manages on January 19. The asset management firm was founded by Andrew Redleaf in 2000 and currently boasts of assets under management of $3.85 billion. 2015 turned out to be a really bad year for Whitebox’s mutual fund arm with its flagship fund ‘Whitebox Tactical Opportunities’ losing 21% (as of December 24, 2015) and witnessing almost $1 billion in redemptions.

According to the fund’s latest 13F filing, its US equity portfolio at the end of September was worth almost $2.24 billion, slightly lower than the $2.31 billion that it was worth at the end of June, and  its top 10 equity holdings accounted for 35.14% of the value of its portfolio. The filing also revealed that Whitebox Advisors’ equity portfolio experienced a turnover of 62.24% during the third quarter and stocks from finance and energy sector constituted a major chunk (23% and 17%, respectively) of it. In this article we will be taking a closer look at the top five stocks Whitebox Advisors was betting on going into the final quarter of 2015.

We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

#5 Yahoo! Inc. (NASDAQ:YHOO)

– Shares Owned by Whitebox Advisors (as of September 30): 792,500

– Value of Holding (as of September 30): $114.9 Million

Amid a 26.4% drop of the Yahoo! Inc. (NASDAQ:YHOO)’s stock during the third quarter, Whitebox Advisors increased its stake in the company by 165%. Yahoo! Inc. (NASDAQ:YHOO)’s Board recently announced that it is abandoning its erstwhile plan of spinning-off Yahoo!’s holdings in Chinese e-commerce major Alibaba Group Holding Ltd (NYSE:BABA) and will start evaluating a spin-off of the company’s core business, the cash in its balance sheet and its stake in Yahoo! Japan.

The company’s intrinsic value and its plans regarding its equity holdings in Alibaba and Yahoo! Japan are probably the main reasons why investors are betting on the stock. Even though during the third quarter, it registered a decline in popularity among the funds we follow with 89 investors reporting long positions as of the end of September, versus 104 funds a quarter earlier.

The investors from our database amassed over 20% of Yahoo!’s outstanding stock heading into the fourth quarter and for good reasons, since several activists have been pushing Marissa Mayer to make a decision regarding Yahoo!’s future. Jeff Smith’s Starboard Value and Joshua Friedman and Mitchell Julis’ Canyon Capital Advisors are two activist funds that have been involved in Yahoo!’s fate of late.

#4 Ocwen Financial Corp (NYSE:OCN)

– Shares Owned by Whitebox Advisors (as of September 30): 792,500

– Value of Holding (as of September 30): $114.9 Million

Shares of mortgage services provider Ocwen Financial Corp (NYSE:OCN) weren’t able to recover from the slump registered in January, 2014, and ended the last year down by over 50%. During the third quarter, the stock fell severely after the company reported dismal second quarter earnings, causing it to end the quarter down by 34.2%. However, Whitebox Advisors displayed its conviction on the company by increasing its stake in it by 61% during the same period.

The company is expected to report its fourth-quarter results later this month and analysts expect a loss of $0.34 per share, significantly narrower than the loss of $1.42 it reported for the same quarter a year earlier. On December 12, analysts at Piper Jaffray resumed their coverage on Ocwen Financial Corp (NYSE:OCN)’s stock by downgrading it to ‘Neutral’ from ‘Overweight’ and also slashing their price target on it to $6.50 from $12, which represents a potential downside of 4.5% from the stock’s current trading price.

Apart from Whitebox Advisors, Jonathon Jacobson‘s Highfields Capital Management also increased its stake in Ocwen Financial Corp (NYSE:OCN) during the third quarter (by 10%); it held 4.7 million shares of the company, as of September 30.

 #3 American Capital Agency Corp. (NASDAQ:AGNC)

– Shares Owned by Whitebox Advisors (as of September 30): 792,500

– Value of Holding (as of September 30): $114.9 Million

Though the stock of  American Capital Agency Corp. (NASDAQ:AGNC) fell by over 20% during 2015, due to the company’s $0.20 monthly dividend, the stock currently sports a yield of 14%. This hugely attractive dividend yield can be one of the reasons why Whitebox Advisors increased its stake in the REIT by 7% during the third quarter and the ownership of American Capital Agency among the funds tracked by Insider Monkey increased by seven to 26 during the same period.

In the last few quarters, the shares of REITs have fallen considerably amid the fears of interest rate hike, and now that the Fed has started raising rates, some investors fear that REIT stocks might lose even more ground. However, experts point out that those fears are unfounded since in the 16 periods in the last 20 years when interest rates were hiked considerably, equity REITs generated positive returns in 12.

On December 16, analysts at Morgan Stanley downgraded the stock to ‘Underweight’ from ‘Overweight’ and also reduced their price target on it to $18 from $21. Billionaire George Soros‘ Soros Fund Management initiated a stake in American Capital Agency Corp. (NASDAQ:AGNC) by acquiring some 1.12 million shares.

#2 American Capital Ltd. (NASDAQ:ACAS)

– Shares Owned by Whitebox Advisors (as of September 30): 792,500

– Value of Holding (as of September 30): $114.9 Million

American Capital Ltd. (NASDAQ:ACAS) reported much better than expected third quarter of fiscal 2015 results on November 4, which sent its shares higher during November and helped them to end 2015 down by only 6.32%. While analysts had expected the company to report EPS of $0.25 on revenue of $171.43 million, American Capital Ltd. (NASDAQ:ACAS) reported EPS of $0.40 on revenue of $176 million for the quarter. Perhaps Whitebox advisors was expecting this sort of outperformance from the company and that’s why increased its stake by 40% during the third quarter.

On December 8, the company announced that it has sold its portfolio company ‘ Dynojet Research, Inc.’ to Irving Place Capital and New Value Capital. Shares of American Capital are currently trading at a forward price-to-earnings multiple of 10.72, which is reasonable, but is a little rich when compared to other publicly traded asset management firms. The short-term debt on the company has been increasing consistently for the last four quarters, which might be a cause of concern for its investors going forward.

For the fourth quarter of fiscal 2015, analysts are expecting the company to report EPS of $0.30, an over 40% increase from the EPS of $0.21 that it had declared for the same quarter last year. William C. Martin‘s Raging Capital Management boosted its stake in American Capital by 350% to almost 4.5 million shares during the July-September period.

#1 Par Pacific Holdings, Inc. (NYSEMKT:PARR)

– Shares Owned by Whitebox Advisors (as of September 30): 792,500

– Value of Holding (as of September 30): $114.9 Million

Finally, even though Par Pacific Holdings, Inc. (NYSEMKT:PARR) [formerly Par Petroleum Corporation] is the only stock among the top five in which Whitebox Advisors slightly reduced its stake (by 2%) during the third quarter, it continued to remain the firm’s largest equity holding at the end of September. On October 14, the company announced that it would change its name to Par Pacific Holdings, Inc. (NYSEMKT:PARR) from Par Petroleum Corporation effective from October 20. Since it became Par Pacific Holdings, Inc. (NYSEMKT:PARR), the company’s stock has moved up by 9%.

Even otherwise, Par Pacific Holdings is among the few energy sector stocks that had a decent run in 2015 and ended the year with gains of 47.12%. This year too, unlike other energy sector stocks, Par Pacific Holdings has largely been resilient to the fall in crude prices and is currently trading flat. Interestingly, despite the rise that the stock has had and despite being among the few energy sector companies that can still boast of positive earnings, Par Pacific Holdings’ stock is still trading at a reasonable valuation of 12.62 times its forward earnings.

On November 4, the company reported its third-quarter results, declaring EPS of $0.39 on revenue of $495.5 million, compared to a loss of $1.19 per share on revenue of $854.29 million posted for the same quarter a year earlier. For the fourth quarter, analysts expect the company to deliver EPS of $0.38 on revenue of $528 million. Billionaire Jim Simons‘ Renaissance Technologies reduced its stake in the company by 33,437 shares to 97,500 shares during the third quarter.

Disclosure: None