Whetstone Capital Advisors is a value oriented long/short hedge funds, focusing on investing in industries that benefit from secular growth. David Atterbury started the fund in late 2010 with $13 million in seed money. The fund’s strategy is to invest about a third of the value of its long positions into short positions, mainly in companies that are struggling, as opposed to traditional hedging.
According to a recent investor letter, this past year has been a roller coaster for Whetstone in terms of returns. Since August 2015 until February 2016, Whetstone has been severely underperforming and lost on average 14.90% per month. However, since March through July it has managed to turn things around and year-to-date it is up by 2.2%, although still lagging behind the S&P 500. As revealed in the fund’s latest 13F filing, during the second quarter, David Atterbury increased his fund’s exposure to the energy sector, which currently accounts for 70% of the equity portfolio, up from 60% at the end of the first quarter. The remaining 30% comprise technology and consumer discretionary stocks. At the end of June, the portfolio carried an estimated market value of $170 million.
Imitating hedge funds and other institutional investors can help identify some of the most profitable stocks on the market. However, our extensive research that covered the period between 1999 and 2012, showed that the best approach is to follow these investors into their small-cap stocks. Our backtests showed that the 15 most popular small-cap stocks among hedge funds managed to generate a monthly alpha of 81 basis points, versus an alpha of 0.7 percentage points posted by their top 50 large-cap picks (see more details here).
Keeping An Eye On Envestnet
Opening Whetstone Capital’s top five positions is Envestnet Inc (NYSE:ENV). During the quarter, the fund’s position was unchanged, as it continues to hold 347,616 shares. At the end of June, the position was worth $11.5 million, up from $9.45 million a quarter before. Envestnet Inc (NYSE:ENV) is not popular among the hedge funds followed by Insider Monkey, with only 5 of them having reported a stake in the company at the end of the second quarter, down from 6 registered a quarter before. Gunnar Overstrom, the manager of Three Corner Global Investors, dumped 67% of his fund’s investment in the company, reducing it to 138,568 shares worth $4.62 million. So far this year, the stock has been in a solid uptrend, gaining roughly 36% through Thursday’s closing price of $39.21 per share. The company released second quarter financial results on August 9, posting a loss of $7.9 million. When adjusted for one-time costs, Envestnet Inc (NYSE:ENV) actually earned $0.21 per share, on the back of $141.7 million in revenue. Investors, on the other hand, were looking for $0.20 per share form $139.2 million in revenue. For the current quarter, the company expects earnings to range between $0.25 and $0.26 per share.
Next up is Gray Television, Inc. (NYSE:GTN), a television broadcast company. David Atterbury and his team have continued to unload the stock during the second quarter, reducing their investment by 12% to 1.29 million shares worth a little over $14 million. Hedge fund interest in Gray Television, Inc. (NYSE:GTN) took a nosedive during the quarter, with the number of long hedge fund positions having fallen to 20 by the end of June, from 25 registered three months earlier. Billionaire Ken Griffin‘s Citadel Investment Group held 880,309 shares of Gray Television at the end of June, down 56% from the previous quarter. Gray Television, Inc. (NYSE:GTN) has a market cap of $791 million and the stock is currently trading at a trailing Price to Earnings (P/E) ratio of 16, more than double the industry average of 7.8. Shares are currently trading at $10.99 apiece, down by 31% since the beginning of the year.
Turn the page to have a look at Whetstone’s three largest energy bets.
Williams Companies Still A Good Investment
Williams Companies Inc (NYSE:WMB)‘s failed merger has prompted Whetstone Capital’s management to reduce its exposure to the stock by 18%. According to its latest 13F filing, the fund held 731,354 shares worth $15.8 million at the end of June. Despite failing to oust Williams Companies Inc (NYSE:WMB) CEO, activist Keith Meister has not given up and is still looking for ways to shake up the company’s management. His fund, Corvex Capital, has issued a letter to the company’s shareholders to nominate 10 of its employees to Williams’ board of directors, who will act as placeholders until a new slate of directors is elected. Keith Meister also confirmed the rumors that Enterprise Products Partners L.P. (NYSE:EPD) approached Williams earlier this summer, but the latter rebuffed the buyout offer. At the end of the second quarter, 22.5% of Williams Companies Inc (NYSE:WMB)’s common stock was held by 58 of the funds in our database, up from 52 at the end of the first quarter. Phill Gross and Robert Atchinson made a big bullish play on this stock, having increased their fund’s holding by 357%. According to its latest 13F filing, Adage Capital Management held 4.68 million shares valued at $101.3 million.
Bullish On Penntex Midstream Partners
David Atterbury and his team are bullish on Penntex Midstream Partners LP (NASDAQ:PTXP), one of Whetstone Capital’s top performers during the second quarter. The fund’s stake was increased by 23% to 1.19 million shares reportedly worth $18.5 million. Penntex Midstream Partners LP (NASDAQ:PTXP) has a market cap of $641 million and pays an annual dividend of $1.14 per share, providing investors with a 7.12% yield. For the most recent quarter, the company swung to a profit but failed to meet Wall Street’s expectations. The company earned $0.13 per share on the back of $19.2 million in revenue, while analysts had projected $0.14 per share on $18.2 million in revenue. Shares are currently changing hands at $15.97 per unit, up 25% year-to-date. At the end of June, Penntex Midstream Partners LP (NASDAQ:PTXP) could be found in the equity portfolios of 4 of the funds tracked by Insider Monkey, up from 3 a quarter before. Daniel S. Och‘s OZ Management was also invested in this stock, having indicated ownership of 1.8 million shares worth 28.1 million at the end of the quarter.
Energy Transfer Equity LP (NYSE:ETE) is Whetstone Capital’s star performer and the new top equity position. According to its recent 13F filing, the fund held 1.75 million shares valued at $25.1 million. Hedge fund sentiment towards Energy Transfer Equity LP (NYSE:ETE) was pretty much unchanged during the quarter, as the number of funds invested inched down to 30 at the end of June. Jim Simons‘s Renaissance Technologies, on the other hand, reduced its holding of the stock by 15% to 1.71 million shares valued at $24.5 million. Following the failed takeover of Williams Companies, Energy Transfer Equity LP (NYSE:ETE) decided to focus on its in-house projects, including an important pipeline from North Dakota’s Bakken Shale formation. It is expected to go online by the end of the year and the company’s management is intent on increasing its capacity to 570,000 barrels a day from 470,000 barrels a day. Analysts’ at Morgan Stanley have recently initiated coverage on the stock, assigning an ‘Overweight’ rating and a price target of $20 per share. Credit Suisse has the same price target, having reiterated its ‘Buy’ rating in the beginning of August.