Axar Capital’s Top Stock Picks

Axar Capital is a New York-based hedge fund launched in 2015 by Andrew Martin Axelrod. After graduating from Duke University where he earned a Bachelor of Science in Economics, he gained a fair amount of experience prior to launching his own fund. Mr. Axelrod was partner and co-head of North America for Mount Kellet Capital Management. He also served as Chairman of Evoq Properties, Inc, Principal at Goldman Sachs & Co. LLC, and Analyst at Kohlberg Kravis Roberts & Co. He was also a member of Seventy Seven Energy Board of Directors. He currently holds positions of Managing Partner and Portfolio Manager in his own fund. Axar Capital provides services to pooled investment vehicles and institutional clients, performing bottom-up analysis to distinguish value-oriented investment opportunities dictated by the market fluctuations. The fund’s strategy is focused on event-driven and special situations investments, in order to generate positive risk-adjusted results. It targets companies mainly from the US and Canada, as well as other developed countries.

Andrew Axelrod Axar Capital

Andrew Axelrod of Axar Capital

Since its inception, the fund seems to be struggling to adjust the optimal strategy, since its returns seem to be fairly weak. In 2015 Axar Capital return was -9.8%, while in the following year, the fund delivered a surprising 36.7%. However, in 2017 and 2018 there was again a drop of 0.4% and -9.9% respectively. Year to date, the fund was still on the positive side of the scale, with a return of 1.7%, as data of June 2019 indicates. These figures bring to a an annualized return of 3.1%, showing that the fund should probably reassess its strategy.

Insider Monkey’s mission is to identify promising (and also terrible) hedge fund stock pitches and share them with our subscribers. We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent.

Our short strategy is based on shorting hedge fund hotels that are likely to experience large hedge fund sales during market weaknesses. We launched this strategy in February 2017. It’s been almost 3 years and the stock picks of this strategy lost a cumulative 27.8% vs. a cumulative gain of 39% for the S&P 500 ETF. This is an absolutely mind blowing performance. The annualized return of our short picks is -9.3%, vs. 12.7% annualized gain for the S&P 500 Index during the same period. The annual alpha of this strategy is 22 percentage points. Jim Chanos doesn’t generate this kind of performance. The best thing about this short strategy is that it provides an excellent hedge during market meltdowns. For example, in Q4 of 2018 when the S&P 500 Index lost nearly 14%, this strategy’s picks lost 25% protecting our premium subscribers from large losses (see the details here).

Our newsletters are successful because we follow hedge fund managers like Andrew Martin Axelrod to identify the best and worst hedge fund stock picks. In this article we are going to take a look at Axar Capitals top stock picks. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. We noticed that none Axar Capital’s top 5 stock picks are among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).

At the end of Q3 there were only four stocks Axar Capital was investing into. At the fourth place was Jakk Pacific Inc (NASDAQ:JAKK), a new addition in the fund’s portfolio. Axar Capital was the company’s second top investor, holding 1,141,225 shares worth $976,000. Apart from it, only four other hedge funds were bullish on the company, which is one hedge fund more compared to the previous period. Renaissance Technologies held the largest stake in the company, worth $1.8 million. The other investors for this period were Oasis Management, Two Sigma Advisors and Tudor Investment Corp.

The fund’s third top stock pick for third quarter 2019 was Independence Contract Drilling Inc (NYSE:ICD). Even though Mr. Axelrod cut the position by 1%, it remained at the same palace since the last quarter (since the portfolio included more positions in Q2), comprising 6.2% of the fund’s portfolio. A total of 12 hedge funds tracked by Insider Monkey were investing in the stock, which is 2 hedge funds more compared to Q2. The company’s top shareholder for this period was MSDC Management, which reported holding a stake worth $22.6 million. Among other hedge funds bullish on the company were MSD Capital, Birch Grove Capital, and Adage Capital Management.

At the second place in Axar Capital’s latest 13F fillings was Stage Stores (NYSE:SSI). The fund seems to be very fond of the company, since it was among its most valuable positions for more than a year. The fund allocated 45% of its portfolio to this stock, and it was also the company’s top shareholder. Axar Capital reported holding 4,300,000 shares worth $8.1 million at the end of Q3.  Apart from it, there were 5 other hedge funds investing in the stock, including Royce & Associates, Renaissance Technologies, and Citadel Investment Group. There was 1 hedge fund more bullish on the stock since Q2, and that was Exodus Point Capital, where Stage Stores was a new addition to the fund’s portfolio.

Finally, Axar Capital’s top stock for Q3 was StoneMor Partners L.P. (NYSE:STON). It is definitely the fund’s favorite stock, since it was at the top of its most valuable positions during the last 2 years. Axar Capital was the company’s top shareholder as well, allocating 48% of its portfolio to the stock. The fund reported holding a stake worth $8.6 million. However, there was only one other hedge fund investing in the company, Oaktree Capital, holding $5 million worth of stock. The number of hedge funds investing in the company is more or less constant, with change of 0% since the previous quarter, while there were 3 hedge funds investing in it a year ago (read in more detail here).

5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Disclosure: None. This article was originally published at Insider Monkey.