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Anchorage Capital Sees Bigger Things Ahead For This Retailer Than Its Paltry 41% Returns This Year

In a recently-amended 13G filing with the U.S. Securities and Exchange Commission, Anchorage Capital Partners, founded by Kevin Michael Ulrich and Anthony Davis, reported owning 4.87 million shares of CONN’S Inc. (NASDAQ:CONN), which include 3.62 million shares and 1.25 million shares that may be acquired upon the exercise of options. Therefore, the New York-based investment firm has acquired 1.25 million options since its last filing on the specialty retailer, which suggests confidence in the future prospects of CONN’s. Let’s not forget to mention that the freshly-updated stake accounts for 13.3% of the company’s outstanding shares.

Anchorage Capital 2014 Q2 Investor Letter

Let’s provide a brief introduction to Anchorage Capital Partners, which was founded in 2003 and is one of the largest U.S distressed credit hedge funds. The firm primarily invests in credit, special situations and illiquid investment markets in North America and Europe by employing an active long/short strategy. However, Anchorage Capital Partners tends to specifically focus on defaulted and leveraged issuers. Anthony Davis, one of the co-founders of the firm, announced his retirement to investors last year. In the meantime, the New York-based firm manages a public equity portfolio with a market value of $7.28 billion as of June 30.

Kevin Michael Ulrich And Anthony Davis
Kevin Michael Ulrich And Anthony Davis
Anchorage Advisors

We follow hedge funds like Anchorage Capital Partners because our research has shown that their stock picks historically managed to generate alpha even though the filings are up to 45-days delayed. We used a 60-day delay in our back tests to be on the safe side and our research showed 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, during which time they have returned 118%, outperforming the S&P 500 ETF by over 60 percentage points (see more details here).

We will now turn our full attention to CONN’S Inc. (NASDAQ:CONN), a specialty retailer of furniture and mattresses, home appliances, consumer electronics and home office products, and provider of consumer credit. The stock had a wild run during the first half of the year, returning 112% during the first six months of 2015. However, the shares of CONN’S have been riding a steady downtrend since the beginning of July, so the spectacular return of 112% has narrowed down to 41%. Meanwhile, Anchorage Capital Partners is not the only hedge fund within our database becoming more bullish on CONN’S; Jason Karp’s Tourbillon Capital Partners reported an ownership stake of 3.25 million shares in the retailer earlier this month.

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