Nathaniel August‘s $866 million long/short hedge fund Mangrove Partners is best known for its hefty 43.96% annualized returns in the three years following its launch in 2010. The fund employs a methodical screening-based sourcing model to identify mispriced equities. On the long side, the fund focuses on companies undergoing restructurings, asset-heavy businesses trading at significant discounts, and undervalued businesses trading at significantly discounted multiples. The short side makes bets on companies with flawed business models or those engaging in fraud. Prior to establishing Mangrove, August worked as a private-equity analyst at Goldman Sachs and was a director at the start-up hedge fund White Eagle Partners. Mangrove started out with just $12 million in assets and at the end of the first quarter, the market value of its public equity portfolio stood at $414.77 million, with the finance sector contributing 48% to this value. The fund initiated new positions in 14 companies, which were headed by Celladon Corp (NASDAQ:CLDN), Newfield Exploration Co. (NYSE:NFX), and Echostar Corporation (NASDAQ:SATS), and we’ll take a look at those new picks in this article.
Mangrove Partners is just one of more than 700 hedge funds that we have in our database, whose equity portfolios we collate quarterly as part of our small-cap strategy. Even though most smaller investors believe that tracking 13F filings is a fruitless endeavor because they are filed with a delay of a maximum of 45 days after the end of a calendar quarter, the results of our research prove that is not the case. To be on the safe side, we used a delay of 60 days in our backtests that involved the 13F filings of funds between 1999 and 2012 and we still managed to gain an annual alpha in the double digits. Moreover, since the official launch of our strategy in August 2012, our small-cap strategy has obtained returns of more than 142%, beating the S&P 500 Total Return Index by greater than 83 percentage points (see the details).
Mangrove acquired 1.0 million shares of Celladon Corp (NASDAQ:CLDN) valued at $18.94 million during the first quarter. The holding represents 4.57% of the fund’s portfolio value. So far this year, the $52.36 million clinical-stage biotechnology company’s stock has slumped by nearly 90%, which explains Mangrove’s interest in the company. The major part of this decline came in April when Celladon Corp (NASDAQ:CLDN)’s genetically-targeted enzyme replacement therapy, Mydicar, a treatment for heart failure, delivered disappointing results during its Phase 2b trial. The biotechnology industry in comparison, has gained about 18% year-to-date. William Leland Edwards‘ Palo Alto Investors is the largest stockholder of Celladon Corp (NASDAQ:CLDN) within our database, holding some 1.45 million shares valued at $27.37 million.