Michael Kao is founder and CEO of Akanthos Capital Management. After completing his undergraduate studies in engineering and computer science at the University of California, Berkeley, Kao went on to Wharton School to obtain his M.B.A. He was a commodity derivatives trader at Goldman Sachs from 1992 to 1995 and a portfolio manager at Canyon Capital Advisors from 1997 to 2002. Kao founded Akanthos in 2002 and continues to manage the fund. As Kao has presented, the fund focuses its long/short value strategy on factors that affect volatility, equity, and credit structures to determine investment quality and opportunity. The fund is especially keen on convertible arbitrage, capital-structure arbitrage, and event-driven strategies.
According to its latest 13F filing, Akanthos has a healthy mix of equities and bonds as its top holdings, which you can view here. It holds $10.7 million in 3 percent notes from Suntech Power Holdings Co., Ltd. (NYSE:STP) and $3.7 million in bonds from Solarfun Power Holdings. The following are its top four equity holdings.
General Motors Company (NYSE:GM) obviously has a complex capital structure that, as Kao views it, nevertheless makes it a favorable equity investment. We have noted elsewhere that the company has underfunded pensions (underfunded by about $25 billion at the end of 2011), and the U.S. Treasury still owns 26 percent of the company. Recent estimates claim that the company is burning around $49,000 per Volt hybrid that it sells due to research and development costs, though others have disputed this as a shortsighted, considering that the Volt will presumably be sold over a large stretch of years. That said, the compact and hybrid car market is one of the most competitive and lucrative markets for carmakers today; compact car sales led automakers to have the best August for sales in the past five years. Superstar hedge fund manager David Einhorn’s Greenlight Capital has a hefty $344 million stake in the carmaker (see the funds holdings here).
Wynn Resorts, Limited (NASDAQ:WYNN) owns and operates two casino resort locations, one in Las Vegas and one in the Macau region of China. The company cumulatively maintains 5,750 hotel rooms and over 450,000 square feet of gaming space. Revenue rose in 2011 to $5.3 billion, up from $4.2 billion in 2010. Earnings, which were depressed during the slowdown following 2008, have surged lately; the company is expected to report earnings of $5.50 per share for 2012. There is a fair amount of opportunity for expansion in the Macau region, but there is also uncertainty regarding regulations that might slow further expansion.
Entertainment Properties Trust
Another entertainment sector holding, Entertainment Properties Trust (NYSE:EPR) is real estate investment trust (REIT) with a portfolio of properties that includes theaters and retail centers with a major entertainment component. The company’s shares have traded between $35 and $50 since the beginning of 2010 and offer a consistent 6.30 percent dividend yield (it has paid a dividend continuously since 1998). The company sold its winery properties and wine tasting room at the end of 2011. REITs tend to pay solid dividends, and Entertainment Properties Trust has a pretty solid portfolio of core properties that make it a stable play for the income investor.
Allegheny Technologies Incorporated (NYSE:ATI) produces a variety of advanced metals and alloys, such as titanium alloys, specialty powders, tungsten-based cutting tools, and a number of castings and forgings. In respect to the materials sector, Allegheny Technologies is favorably valued. Shares are trading at 0.67 times sales and 8.8 times cash flow, below the S&P BMI Materials sector index values of 1.1 and 10.3, respectively. Sales are expected to rise 6 percent in 2012 after rising 28 percent in 2011. Additionally, shares are near their 52-week low. However, this valuation story should also be put in the context of Allegheny’s exposure to the aerospace industry. This industry is positioned for considerable secular growth but is infamously volatile.