Established in 2002, Michael Kao‘s Woodland Hills, California-based Akanthos Capital has about $1.23 billion worth of assets under management. Only a fraction of those assets are invested in the public equity markets, as according to the fund’s latest 13F filing, the market value of its public equity portfolio stands at just $48.54 million, with much of that total being invested in healthcare, finance, and energy stocks. Akanthos’ thematic portfolio construction means that it also invests in securities which have a low correlation with major equity and hedge fund indices. In this article we are going to take a look at the firm’s top equity picks for 2016.
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. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas (see the details here).
#5 Ocwen Financial Corp (NYSE:OCN)
– Shares Owned by Akanthos Capital (as of December 31): 525,000
– Value of Holding (as of December 31): $3.66 Million
Akanthos Capital slightly decreased its stake in the $690.35 million financial services holding company during the October-to-December period, by 1%. The holding represents about 7.54% of the fund’s equity portfolio. In the last 12 months Ocwen Financial Corp (NYSE:OCN)’s stock price has plunged by a staggering 43.6% while the retail and mortgage banks industry has gained over 13% during the same period. The company has been hit by a number of scandals recently, leading to a restatement of its earnings from the final three quarters of 2013 and the first quarter of 2014. In December, Ocwen reached a $150 million settlement with New York’s Department of Financial Services and just last month it agreed to pay $2 million to settle SEC claims that it relied on valuations from a related party when it came to the company’s mortgage assets. Michael Blitzer‘s Kingstown Capital Management is the largest stockholder of Ocwen Financial Corp (NYSE:OCN) among the investors that we track, as it held 12.5 million shares of the company at the end of the fourth quarter.
#4 Brookdale Senior Living, Inc. (NYSE:BKD)
– Shares Owned by Akanthos Capital (as of December 31): 200,000
– Value of Holding (as of December 31): $3.69 Million
During the fourth quarter, Akanthos upped its stake in Brookdale Senior Living, Inc. (NYSE:BKD) by 11%. The firm initiated its stake in the $2.11 billion operator of more than 1,100 senior living communities during the second quarter. The company’s stock has cratered by more than 68% during the last year, while the residential & long term care industry has slid by more than 20% on average in the same period. Investors were disappointed by the company’s fourth quarter financial results on account of a lower year-over-year occupancy rate, which was down by 150 basis points to 86.8%. Moreover Brookdale’s Cash From Facility Operations guidance range of $2.45-to-$2.55 for 2016 also fell below analysts’ expectations of $2.62. Glenview Capital, managed by Larry Robbins, held more than 18.14 million shares of Brookdale Senior Living, Inc. (NYSE:BKD) at the end of the fourth quarter.
#3 WMIH CORPORATION (NASDAQ:WMIH)
– Shares Owned by Akanthos Capital (as of December 31): 1.5 million
– Value of Holding (as of December 31): $3.89 Million
After an 18% reduction in its WMIH stake during the fourth trimester, Akanthos’ holding in the company represented 8.01% of its portfolio. The shell corporation controlled by the renowned equity firm KKR emerged from bankruptcy in 2012. Its shares have been listed since September of last year and are trading nearly sideways since then. Although WMIH CORPORATION (NASDAQ:WMIH) has about $5.97 billion in NOLs, they can’t be exhausted overnight and the company is still evaluating options for its first acquisition. Hence, the company’s current market valuation of $482 million could rise significantly in the near future. David Tepper‘s Appaloosa Management is the largest stockholder of WMIH CORPORATION (NASDAQ:WMIH) as it held more than 16.90 million shares at the end of December.
#2 McDermott International (NYSE:MDR)
– Shares Owned by Akanthos Capital (as of December 31): 500,000
– Value of Holding (as of December 31): $6.38 Million
Akanthos’ holding of McDermott International remained unchanged during the October-to-December period. The stock price of the $632 million Houston-based engineering, procurement, construction, and installation firm is down by nearly 10% over the last 12 months. With the appointment of David Dickson as its CEO, McDermott International (NYSE:MDR) is looking to make a turnaround, with an eye on cutting back on losing projects. Late last month, McDermott was awarded an installation contract for deepwater subsea tieback in the Gulf of Mexico.
#1 Career Education Corp. (NASDAQ:CECO)
– Shares Owned by Akanthos Capital (as of December 31): 2.05 million
– Value of Holding (as of December 31): $7.44 Million
Akanthos trimmed its stake in Career Education Corp. (NASDAQ:CECO) by 2% during the fourth trimester. In the last 12 months Career Education Corp. (NASDAQ:CECO)’s stock has plunged by about 53%. In order to receive Title IV funds without restriction, the company expressed its intention to sell its failing culinary school Le Cordon Bleu. However, the company has been unable to do so and this could create problems for it in qualifying for Title IV funds. Nathaniel August‘s Mangrove Partners held more than 3.27 million shares of Career Education Corp. (NASDAQ:CECO) at the end of December.