Hawk Ridge Partners is a Los Angeles-based long-short equity firm and was the 28th-best performing hedge fund in our database during the second quarter according to our returns formula. The fund was founded back in 2005 by its current Portfolio Manager, David Brown, with only $4 million in assets. Mr. Brown’s career started in 1999 at Donaldson Lufkin & Jenrette, where he worked in the investment banking division. After that, he sharpened his investment philosophy at private equity specialist Brentwood Associates. David Brown’s passion for investing developed when he was still in high school, buying American Express Company (NYSE:AXP) shares that have had an estimated gain of 900% since then, shares which he has never sold. He graduated summa cum laude with a B.A. in Economics from Claremont McKenna College.
The investment strategy that Hawk Ridge Management employs is focused on acquiring long positions in undervalued companies with promising business features, while taking short positions in companies with overly high values and weak business features. The fund mainly invests in U.S businesses, and aside from its Los Angeles headquarters, it also maintains an office in New York City. Its investment philosophies and stock analyses have been strong based on its positive returns throughout the years. From its inception in October 2005 through February 28, 2017, the fund had an annualized return of 12.81%.
The fund’s recent performance figures have also been excellent. In 2016 Hawk Ridge Management returned 17.93%, bumping its average to 12.12% between 2014 and 2016, ending up 34th on Barron’s top 100 hedge funds list in 2017. In 2017 the fund had a return of 8.02% which gave it an average of 11.1% between 2015 and 2017, placing it 58th on Barron’s 2018 list. At the end of December 2016, the fund reported managing around $345.99 million of net assets on a discretionary basis. Its 13F portfolio was valued at $431.75 million at the end of June.
Insider Monkey’s flagship strategy identifies the best performing 100 hedge funds at the end of each quarter and invests in their consensus stock picks. This way it is always invested in the best ideas of the best performing hedge funds and is able to generate much higher returns than the market. Since its inception in May 2014, our flagship strategy generated a cumulative return of 121% vs. a cumulative gain of 66.6% for the S&P 500 ETF (SPY) (see the details here).
According to Hawk Ridge Management’s most recent 13F filing with the Securities and Exchange Commission, the fund made quite a few changes to its portfolio in the second quarter. It added 16 new companies to its holdings, raised its positions in six companies, lowered its stake in 12, and dumped 12 stocks.
We’ll discuss the fund’s second quarter holdings in more detail on the next page.
The biggest new position that Hawk Ridge acquired in Q2 was in Argan Inc (AGX), worth around $16.64 million, and counting 406,370 of the company’s outstanding shares. Next in line was its investment in Spectrum Brands Legacy Inc. (SPB), with the fund buying 186,410 shares valued at $15.22 million at the end of June. This seems like a smart investment move for Hawk Ridge Capital, as the smart investors that we track are becoming more bullish on Spectrum Brands Legacy Inc. (SPB) overall, with 22 hedge funds long the stock at the end of June, up by five from the previous quarter.
The largest stake the fund held at the end of Q2, accounting for 8.4% of its 13F portfolio’s value, was Celestica Inc (CLS). Hawk Ridge’s Celestica position was valued at $36.31 million on June 30 and counted 3.06 million shares. Hawk Ridge Management actually lowered its stake in the company by 5% from its previous 13F, just as it lowered its position by 4% in Etsy Inc (ETSY), which was the second-most valuable stake in its portfolio at the end of June, counting 664,489 shares valued at $28.04 million.
Some of the companies Hawk Ridge Management is becoming more optimistic about include On Deck Capital Inc. (ONDK), in which the fund increased its stake by 184% to 1.6 million shares, and Gulfport Energy Corp (GPOR), in which the fund raised its stake by 47% to 326,600 shares, amassing a position that was valued at $4.11 million at the end of June.
The fund completely sold off 12 companies in the second quarter, the biggest positions of which were in Equity Commonwealth (EQC) (236,3030 shares valued at $7.25 million on March 31), and G-III Apparel Group Ltd (GIII) (190,600 shares worth $7.18 million). Interestingly, both companies are becoming more interesting to the smart money investors in our database, as 24 hedge funds were long Equity Commonwealth (EQC) and 21 were long G-III Apparel Group Ltd (GIII) at the end of June, compared to 21 and 18 respectively at the end of March. Seeing the optimism for these stocks, it could be that dumping them wasn’t the best move for Hawk Ridge Management. Time will tell.
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