Nancy Havens-Hasty’s Latest Risk Arbitrage Picks

Havens Advisors’ third largest holding, Automotive Holdings Corp. (NYSE:TRW) was comprised of nearly 118,200 shares valued at $12.42 million. During the quarter 30,200 shares of the company were acquired. The supplier of automotive systems, modules and components is one step closer to being acquired by the German car parts maker ZF Friedrichshafen, which recently received approval for its $13.5 billion takeover offer from the European Union, provided that it sells Automotive Holdings Corp. (NYSE:TRW)’s chassis components business. The company’s stock has appreciated by about 2.44% year-to-date. In its financial results for the first quarter, Automotive Holdings Corp. (NYSE:TRW)’s EPS of $2.01 beat estimates by $0.14, but its revenue of $4.41 billion was $40 million short of estimates. Mathew Halbower’s Pentwater Capital Management held about 4.85 million shares of Automotive Holdings Corp. (NYSE:TRW) at the end of the fourth quarter.

A stake in Lorillard Inc. (NYSE:LO) was initiated by Havens Advisors during the first quarter with some 124,100 shares valued at $8.67 million. The $25.94 billion tobacco company is another risk arbitrage pick, whose sale to U.S. Reynolds American, Inc. (NYSE:RAI) seems to be on hold for the time being by the FTC’s antitrust concerns, since it involves the marriage of the second and third ranked tobacco companies in the U.S. Reynolds American, Inc. (NYSE:RAI) offered to buy Lorillard Inc. (NYSE:LO) for $25 billion last year. Among other investors hoping for the merger to go through is Daniel S. Och, as his fund OZ Management held about 4.37 million shares of Lorillard Inc. (NYSE:LO), according to its latest filing.

Insider Monkey tracks hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of 6 basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of 7 basis points per month between 1999 and 2012. These stocks were able to generate alpha because of their lower risk profile. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month. These stocks were slightly riskier, so their monthly alpha was 80 basis points (read the details here). We believe investors will be better off by focusing on small-cap stocks rather than large-cap stocks.

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