General Motors Company (GM), Railroads Among Chip Paquelet’s Skylands Capital’s Top Q2 Plays

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Charles (Chip) Paquelet’s Skylands Capital has filed its latest 13F with the SEC and for those not in the know concerning Skylands’ investment strategy, the limited movement at the top of the fund’s equity portfolio makes it clear that it has a long-term focus with many of its top picks. Indeed, Skylands puts great emphasis on getting to know the management teams of the companies it invests in, given that it is looking for stable long-term growth and wise deployment of capital.

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Founded by Paquelet in 2004, Skylands analyses thousands of companies and has meetings with hundreds of those annually, highlighting the power such firms have to gather data and reach conclusions that the average investor simply isn’t able to. That’s why we knew we wanted to build a strategy around hedge fund expertise, by honing in on where their greatest strength lie: their ability to invest wisely in small-cap companies. We found that we can combine the pricing inefficiencies among these small-cap stocks with that hedge fund expertise and obtain significant results. This was confirmed through backtesting and in forward tests of our small-cap strategy since 2012. The strategy, which involves imitating the 15 most popular small-cap picks among hedge funds managed to provide gains of more than 137%, beating the broader market by over 82 percentage points through the end of March (see the details).

The order of Skylands’ top five holdings remains unchanged for the third straight quarter and only one of those five positions was changed by at least 1%, with the other four receiving only miniscule changes. Union Pacific Corporation (NYSE:UNP) was not that one, with the position remaining essentially unchanged at 841,450 shares worth $91.81 million, increased by just 1,650 shares during the quarter. What did change was the fund’s exposure to the stock, which dipped to 9.25% from 10.24%, as Union Pacific Corporation (NYSE:UNP) slid by 8.68% during the quarter due to weakness in the overall rail industry and multiple analyst downgrades. Indeed, the downgrades and dip were justified a month later when Union Pacific Corporation (NYSE:UNP) missed revenue estimates. Jean-Marie Eveillard’s First Eagle Investment Management held the largest position in Union Pacific among the funds in our database at the end of 2014.

Skylands’ position in Crown Castle International Corp. (NYSE:CCI) also remained virtually unchanged during the quarter at 703,325 shares, which held a value of $58.05 million at the end of March. Crown Castle International Corp. (NYSE:CCI) received a prominent catalyst in the middle of October when activist investor Keith Meister of Corvex Capital changed his long standing investment in the company to activist, in addition to making a presentation and sending a letter to its shareholders. Meister saw as potential returns of 60% in Crown Castle International Corp. (NYSE:CCI) over the next 15 months. Fast forward six-and-a-half months, and Crown Castle shares have gained a little under 5%, meaning there could be a good deal of untapped potential still left in the company and its shares. Billionaires Daniel S. Och and Andreas Halvorsen are a few of the other investors hoping that is the case, each owning large positions in the real estate investment trust (REIT).

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