Dycom Industries, Inc. (DY), Apple Inc. (AAPL) and Kohl’s Corporation (KSS): Hedge Fund Manager William Harnisch’s Picks Killed The Market in Q1

William Harnisch‘s long stock positions, as disclosed in Peconic Partners LLC‘s latest 13F filing, posted strong gains of 7.5% during the first quarter, based on 26 holdings in companies with a market cap exceeding $1 billion. While this performance overshadowed the 0.9% returns of S&P 500 ETF (SPY) during the first quarter, some funds like Nathan Fischel’s Dafina Capital Management simply killed the quarter with their long equity positions posting 51.4% average returns. It should be noted that since hedge funds also invest in various other securities apart from the positions that are disclosed in their 13F filings, their actual returns could be significantly different from our estimates.

William Harnisch

The name Peconic is based on a wealthy Native American tribe in East Long Island and if it was meant to bring luck to the fund, it surely worked out well in the first quarter. Harnisch founded the fund in December 2004 as he separated from Forstmann-Leff Associates, which he joined as a research analyst in 1978 and later rose to the role of President and Chief Executive Officer. The fund’s investment strategy aims to look beyond the macroeconomic picture and through rigorous research creates investment ideas that aim to capitalize on technological innovation in various sectors that could potentially create significant value for companies. Towards the end of 2014, the market value of Peconic’s portfolio stood at $460.47 million with 48% of the holdings in the industrial sector. Among the best performing holdings in terms of stock returns were those in Dycom Industries, Inc. (NYSE:DY), Apple Inc. (NASDAQ:AAPL), Kohl’s Corporation (NYSE:KSS) and General Motors Company (NYSE:GM), while the strongest drag on these returns was the stake in Lumber Liquidators Holdings Inc (NYSE:LL).

Insider Monkey tracks hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of 6 basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of 7 basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month. These stocks were slightly riskier, so their monthly alpha was 80 basis points (read the details here). We believe investors will be better off by focusing on small-cap stocks rather than large-cap stocks. However, risk-averse investors may also have a slight edge by focusing on hedge funds’ large-cap picks rather than investing in index funds.

Dycom Industries, Inc. (NYSE:DY) was the fund’s largest holding with 2.13 million shares valued at $74.61 million, representing 16.2% of the fund’s portfolio value at the end of 2014. The stock of the provider of contracting services to the telecommunications and infrastructure industry has appreciated by 39.19% over the first quarter, based on strong results for the second fiscal quarter. Growth in the industry relating to high demand for network bandwidth and mobile broadband  have been major driving factors for the $1.65 billion Dycom Industries, Inc. (NYSE:DY). FBR Capital Markets recently increased the company’s price target to $65 from $55. They also have an outperform rating for the company. Billionaire James Dinan‘s York Capital Management also cashed in on Dycom Industries, Inc. (NYSE:DY)’s first quarter rise as it had increased its stake in the company by 34% during the fourth quarter to 2.7 million shares valued at $95.24 million.

Peconic Partners held a rather small stake in Apple Inc. (NASDAQ:AAPL) amounting to 8,050 shares valued at $889,000, but it still added to the fund’s returns as the stock of the tech giant appreciated by 13.17% during the first quarter. Now that iPhone 6 is a slightly older story, analysts are focusing on the prospects of Apple Pay and the recently released Apple Watch. While some regard the smartwatch as a breakthrough in terms of freeing the user from smartphone (the watch keeps you remotely connected to the device all the time) in sort of a similar way as smartphones reduced our dependence on PC, many others have complained about the device’s low battery life and limited navigation abilities and claimed that they would rather wait for improvements in the subsequent model if they decided to buy the new gadget at all. Among over 700 hedge funds that we track, Carl Icahn‘s Icahn Capital held the highest stake in the company with 52.7 million shares valued at $5.82 billion.

Harnisch initiated a stake in Kohl’s Corporation (NYSE:KSS) during the fourth quarter with 376,600 shares valued at $22.99 billion. The timely investment has rewarded him well as the operator of 1,162 department stores located in 49 U.S. states appreciated by 28.98% during the first three months of 2015 amid strong fourth quarter financial results. The company’s growth strategy for the next three years referred to as Greatness Agenda relies on better marketing to promote its products, involving steps such as offering customers an easier shopping experience, personalized connections and incredible savings. Among the billionaires that we track, six had invested a total of $2.06 billion in the company at the end of the fourth quarter, including Israel Englander of Millenium Management and Ken Griffin of Citadel Investment Group.

General Motors Company (NYSE:GM)’s stock sported first quarter returns of 8.29%, while Peconic’s stake in the company stood at 1.17 million shares valued at $40.83 million. The automotive company announced 8% growth in China-based sales for March, with units sold amounted to 338,350. The legendary investor Warren Buffett of Berkshire Hathaway held a whopping 41 million shares valued at $1.43 billion of General Motors Company (NYSE:GM) in his equity portfolio towards the end of 2014.

A newly initiated position that didn’t work out for Harnisch was in Lumber Liquidators Holdings Inc (NYSE:LL) as the stock drastically slid by 53.58% during the quarter. This was a consequence of an episode of the TV show “60 Minutes”, in which it is alleged that some of Lumber Liquidators Holdings Inc (NYSE:LL)’s flooring products contained dangerously high levels of formaldehyde. The investigation by the Consumer Product Safety Comission (CPSC) is still ongoing and the company’s stock has gained some ground as investors feel that the CPSC’s testing methods for formaldehyde are less restrictive than those used on the TV show. Peconic’s stake in the Lumber Liquidators Holdings Inc (NYSE:LL) amounted to 142,700 shares valued at $9.46 million. Another investor with a significant stake is Steve Cohen’s Point72 Asset Management, which held 1.31 million shares valued at $87.05 million at the end of the fourth quarter.

Disclosure: none