Hazelton Capital Partners is a value-oriented hedge fund based in Highland Park, Illinois which was founded by Barry Pasikov in 2009. The fund employs two investing strategies – its Core Strategy involves developing a concentrated portfolio of stocks selected based on sustainable revenue growth, margin expansion, the company’s balance sheet, and its management, while its Overlay Strategy uses options, commodities, currencies and risk arbitrage. The overlay strategy complements the core strategy by providing a hedge as well as short-term cash flows.
Hazelton Capital Partners recently has released its letter to investors for the end of 2016, in which it summarized its performance over the year as well as its top holdings going into 2017. The fund posted a return of 23% last year, beating the S&P, and ended the fourth quarter with a portfolio of 18 equity positions and a cash level equivalent to 20% of assets under management. Hazelton Capital Partners’ investing activities were fairly quiet with no new companies added to the portfolio in the last quarter. Western Digital Corp (NASDAQ:WDC) and Micron Technology, Inc. (NASDAQ:MU) represented the largest positions of the fund at the end of the year. Let’s take a closer look at what Hazelton said about its investments.
We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively the most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs.
Western Digital Corp (NASDAQ:WDC) is the leading manufacturer of Hard Disk Drives (HDD) with a 45% global market share. Last year, it acquired SanDisk, which has an 18% global market share in NAND flash storage. Overall growth in video creation, artificial intelligence, machine learning, and the internet of things (IoT) devices are the key factors driving the growth demand for storage. According to the letter, HDD and NAND are seen as competing technologies to store data. When compared to HDD, NAND has a much smaller footprint, is mobile, energy efficient, and produces input/output speeds that are nearly 15x faster. However, these benefits come at a price that is still 10x more expensive per gigabyte than HDD and is only expected to decline to 6x over the next five years. Businesses are understanding that the value of data comes not only from storage, but real time analytics, and they are recognizing that digital storage is a trade-off between performance and capacity. This means that these technologies are no longer competing, but proving to be complementary to each other. Data that is readily needed for download or analytics will be stored on NAND, and data that is recalled less frequently is shifted to HDD. The decision of where to store data is left up to algorithms that are constantly transferring data from one storage format to another. Western Digital Corp (NASDAQ:WDC) is now strong both in HDD and NAND making it well positioned to benefit from the data growth.
On the next page, we are going to see what Hazelton thinks about Micron Technology and FMC Corp.