Marc Lasry and his fund, Avenue Capital, have struck an agreement with UBS Securities LLC to sell 1.4 million shares of YRC Worldwide Inc (NASDAQ:YRCW). According to a recent filing with the Securities and Exchange Commission, the transaction is set to be completed by August 11 at a nominal price of $19.71 per share, thus bringing $27.6 million into the Avenue Capital’s coffers. As a result, Lasry and his fund are left holding 5.87 million shares which account for 17.9% of the company’s common stock. Prior to this transaction, YRC Worldwide Inc (NASDAQ:YRCW) represented the second-largest holding of Avenue Capital, so why has Lasry decided to reduce his stake?
YRC Worldwide Inc (NASDAQ:YRCW) is a provider of transportation services with a global presence and has a market cap of $658 million. The company has recently released its second quarter financial report, showing signs of improving financial health. YRC Worldwide posted revenues of $1.26 billion and earnings per share of $0.78, easily beating the estimates of $0.25 per share. For the current quarter, analysts expect revenues of $1.25 billion and earnings of $0.49 per share. Although the latest financial report is mostly positive, the company’s debts continue to pose problems, while the management has been working hard to avoid bankruptcy for several years now. Still, the company is not in a hurry to repay its debt and has chosen to invest the available cash to improve its fleet:
“I’m certain there will be a couple of hiccups […] but we’re going to continue to focus on increasing prices, we’re going to continue to double down on our investments in technology […] and continue to invest in our people,” said Jamie Pierson, Chief Financial Officer of YRC Worldwide.
First a quick word on why we track hedge fund activity. In 2014, equity hedge funds returned just 1.4%. In 2013, that figure was 11.3%, and in 2012, they returned just 4.8%. These are embarrassingly low figures compared to the S&P 500 ETF (SPY)’s 13.5% gain in 2014, 32.3% gain in 2013, and 16% gain in 2012. Does this mean that hedge fund managers are dumber than a bucket of rocks when it comes to picking stocks? The answer is definitely no. Our small-cap hedge fund strategy, which identifies the best small-cap stock picks of the best hedge fund managers returned 28.2% in 2014, 53.2% in 2013, and 33.3% in 2012, outperforming the market each year (it’s outperforming it so far in 2015 too). What’s the reason for this discrepancy you may ask? The reason is simple: size. Hedge funds have gotten so large, they have to allocate the majority of their money into large-cap liquid stocks that are more efficiently priced. They are like mutual funds now. Consider Ray Dalio’s Bridgewater Associates, the largest in the industry with about $165 billion in AUM. It can’t allocate too much money into a small-cap stock as merely obtaining 2% exposure would really move the price. In fact, Dalio can’t even obtain 2% exposure to many small-cap stocks, even if he essentially owned the entire company, as they’re simply too small (or rather, his fund is too big). This is where we come in. Our research has shown that it is actually hedge funds’ small-cap picks that are their best performing ones and we have consistently identified the best picks of the best managers, returning 123% since the launch of our small-cap strategy compared to less than 56% for the S&P 500 (see more details).