Kenneth Moffet’s Hourglass Capital Fond of Airlines, Investment Banks for Q2

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Citigroup Inc (NYSE:C) is Hourglass Capital’s third pick and the only one of its top five holdings that it increased last quarter. The position now consists of 409,782 shares, up by 3% over the quarter, with a value of $21.11 million.Citigroup Inc (NYSE:C)’s dip of 4.77% during the first quarter may have prompted Hourglass to add to its position at the discounted price, with the expectation of a rebound being not far off. Indeed, that rebound was not far off at all, with Citigroup making up for those losses in the second quarter, leaving shares up slightly for the year, great news for the multiple investors who beat the market in the first quarter despite Citigroup Inc (NYSE:C) being one of their top picks. Those funds included Mangrove Partners, Kahn Brothers, and Mohnish Pabrai.

Morgan Stanley (NYSE:MS), Moffet’s former employer, ranks as the fourth-most valuable position in his equity portfolio. As with many of the fund’s other top holdings, its position in Morgan Stanley (NYSE:MS) is one it has held highly for numerous quarters. In the most recent quarter, that position was trimmed a wee bit, by 1% to 581,001 shares valued at $20.74 million. Morgan Stanley said yesterday that it could lose about $292 million from a lawsuit brought against it by Deutsche Bank AG (USA) (NYSE:DB) last April, which alleged that Morgan Stanley misrepresented mortgages which were held in a trust that was backed by Deutsche Bank subsidiary Deutsche Bank National Trust. Morgan Stanley (NYSE:MS) shares are down over 2% year-to-date, much to the chagrin of its many bullish investors, including billionaire Mario Gabelli.

As mentioned, United Continental Holdings Inc (NYSE:UAL) ranks in Hourglass Capital’s top seven, and is the second airliner to rank in its top five. The fund’s holding in United Continental was also trimmed during the quarter, to 307,008 shares, 3% less than the previous quarter, with the value of the holding also decreasing to $20.65 million. United Continental Holdings Inc (NYSE:UAL) ranked third among airlines for how many billionaire investors it had in our database, with airlines being a popular sector among those wealthy investors, including billionaire Ken Griffin. Like American Airlines, United Continental has enjoyed an impressive run since the start of 2014, gaining more than 61%, yet has also fallen this year as the industry faces stronger headwinds than it did in 2014.

Professional investors like Moffet spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds performed far better than their large-cap picks, which is where most of their money is invested and why their performances as a whole have been poor in recent years. A portfolio of the 15 most popular small-cap stocks among funds outperformed the S&P 500 Total Return Index by 95 basis points per month between 1999 and 2012 in backtesting. The exceptional results of this strategy got even better in forward testing after the strategy went live at the end of August 2012. A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned more than 137% and beaten the market by more than 82 percentage points since then, and by 4.6 percentage points in the first quarter of this year (see the details).

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