Has Christian Leone Cut Back His Stake In Altisource Portfolio Solutions S.A. (ASPS) Too Early?

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In a Form 4 filed with the Securities and Exchange Commission, Christian Leone’s Luxor Capital Group has disclosed sales on July 23 of 362,150 shares in Altisource Portfolio Solutions S.A. (NASDAQ:ASPS) at prices ranging from $39.50 to $39.90. In its most recent 13F filing, Luxor Capital Group disclosed an ownership stake of 2.38 million shares in Altisource Portfolio Solutions. The fund now holds just under 1.87 million shares of the company, a 9.98% stake.

Christian Leone

Luxor Capital Group is a multi-billion dollar hedge fund established and managed by Christian Leone. The New York-based hedge fund mainly invests in special situations, equity of distressed companies and global debt by employing a value-oriented stock picking approach. The investment management firm manages several separate client-focused equity, fixed income and balanced portfolios. The fund’s most recent 13F filing with the SEC for the March 31 reporting period reveals that it manages a public equity portfolio worth $6.19 billion, while its holdings are diversified among the following sectors: 47.52% in the services sector, 13.56% in the technology sector, and 8.36% and 5.19% in the financial and transportation sectors, respectively. In addition to that, the public equity portfolio managed by Christian Leone and his team is highly concentrated, with the top ten positions representing 66.52% of its entire portfolio.

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Most investors can’t outperform the stock market by individually picking stocks because stock returns aren’t evenly distributed. A randomly picked stock has only a 35% to 45% chance (depending on the investment horizon) to outperform the market. There are a few exceptions, one of which is when it comes to purchases made by corporate insiders. Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned more than 123% over the ensuing 34 months, outperforming the S&P 500 Index by nearly 67 percentage points (read the details here). The trick is focusing only on the best small-cap stock picks of funds, not their large-cap stock picks which are extensively covered by analysts and followed by almost everybody.

Altisource Portfolio Solutions S.A. (NASDAQ:ASPS) is a marketplace and transaction solutions provider for the real estate, mortgage, and consumer debt industries in the United States.  The company’s proprietary business processes, vendor and electronic payment management software, and behavioral science-based analytics improve outcomes for marketplace participants such as sub-prime servicers, utility companies, commercial banks, mortgage bankers, and investors, among others. The shares of Altisource Portfolio Solutions have grown by over 14% year-to-date despite suffering serious slumps at the beginning of the year.

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