Phil Frohlich‘s Prescott Group Capital Management has lifted the veil from its equity portfolio as of the end of March as it recently submitted its 13F filing to the SEC.
Phil Frohlich founded Prescott Group Capital Management in 1992 with an intention to focus on the small and mid-cap equities. As of April 2015, the fund had $662 million assets under management. The investment strategy relies more on a bottoms-up approach, where more emphasis is laid on the company’s fundamentals rather than the macroeconomic environment or market timing. In this regard the fund focuses on the prospective company’s revenue growth, return on equity and its management. The investment strategy is not restricted to hunting for just ‘growth’ or ‘value’ stocks, but could involve a combination of both.
The market value of Prescott’s equity portfolio stood at $497.88 million at the end of March, with Information Technology being the highest contributing sector at 23% of the portfolio value. The top picks of the fund included Air Transport Services Group Inc. (NASDAQ:ATSG), Nature’s Sunshine Prod. (NASDAQ:NATR), Regional Management Corp (NYSE:RM), Servicesource International Inc (NASDAQ:SREV), and PharmAthene, Inc. (NYSEMKT:PIP).
Aside from Prescott we have been following over 700 hedge funds at Insider Monkey for the last couple of years. We follow hedge funds because our research has shown that their stock picks historically managed to generate alpha even though the filings are 45 days delayed. We used a 60-day delay in our back tests to be on the safe side. Our research have shown that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012. These stocks returned 132% over the last 2.5 years, outperforming the S&P 500 ETF by nearly 80 percentage points (see more details here).
With about 6.22 million shares valued at $57.33 million, Air Transport Services Group Inc. (NASDAQ:ATSG) was Prescott’s largest holding, representing 11.51% of the fund’s portfolio value. Air Transport Services Group is a provider of aviation solutions to the cargo transportation and package delivery businesses, whose stock has appreciated by 10.05% year to date. Air Transport Services Group Inc. (NASDAQ:ATSG) has benefitted from a consistent growth in air cargo since the second half of 2014, declining fuel prices, and its customers having a more confident outlook for the market. The most important recent highlight is perhaps the agreement with DHL, whereby Air Transport Services Group Inc. (NASDAQ:ATSG) will extend support to DHL’s North American air network through March 2019.
Among the hedge funds that we track, 19 had an aggregate investment of $195.23 million in Air Transport Services Group Inc. (NASDAQ:ATSG) at the end of 2014, as compared to 24 funds with $164.96 million in the previous quarter. Willem Mesdag‘s Red Mountain Capital was one of them.
Nature’s Sunshine Prod. (NASDAQ:NATR) occupied the second spot on Prescott’s equity portfolio with an unchanged stake during the March quarter, which amounted to 1.87 million shares valued at $24.48 million. The holding constituted 4.92% of the fund’s portfolio value. The stock of the health and wellness company engaged in the sale of nutritional and personal care products has depreciated by 12.08% year to date mainly due to declining sales in Russia, and Central and Eastern Europe, owing to political unrest and the consequent currency devaluations. Jim Simmons‘ Renaissance Technologies is another investor of Nature’s Sunshine Prod. (NASDAQ:NATR).
Prescott’s top holding from the finance sector, Regional Management Corp (NYSE:RM)‘s stock is up about 2.47% year to date. The company recently reported that its delinquency profile as of March was the lowest since its IPO in 2012. Regional Management Corp (NYSE:RM) aims to expand more during 2015 by taking its branch network to between 325 and 330. As of end of March it had 306 operational branches. Prescott held about 900,200 shares of the company valued at $13.29 million. The two largest stockholders of Regional Management Corp (NYSE:RM), according to our database, are Tom Brown‘s Second Curve Capital and Matthew Lindenbaum’s Basswood Capital.
PharmAthene, Inc. (NYSEMKT:PIP)‘s holding in Prescott’s portfolio amounted to 7.98 million shares valued at $13.0 million. The $103.72 million healthcare company is a biodefense company battling biological and chemical threats. Its portfolio of products includes SparVax and Valoritm for anthax, and rBChE , which combats the effects of nerve gases and pesticides. Mathew Mark’s Jet Capital Investors held 2.33 million shares of PharmAthene, Inc. (NYSEMKT:PIP) at the end of 2014.
Frohlich added about 19,152 shares of Servicesource International Inc (NASDAQ:SREV) during the first quarter to take Prescott’s total stake at 3.43 million shares valued at $10.63 million. The stock of the $314.86 million technology company has slid by about 20.94% year to date. This is after an upgrade from JMP Securites to ‘Outperform’ rating with a price target of $7 that made the stock climb to its highest level in nearly two months. Robert G. Moses’ RGM Capital owns about 5.26 million shares of Servicesource International Inc (NASDAQ:SREV) as of the end of last year.
Disclosure: None
