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Rail-Splitter’s Top New Picks For Q3

Rail-Splitter Capital Management was founded in 2002 and is overseen by John Croghan and Richard Fradin. It is a Chicago, Illinois based-hedge fund which focuses on fundamental research, deep sector experience, and valuation discipline. The hedge fund recently filed its 13F Form with the U.S. Securities and Exchange Commission, revealing its public equity holdings as of the end of the second quarter of 2015. The fund had 31% of its holdings invested in technology stocks, 24% in healthcare stock, and 22% in consumer discretionary companies. The market value of the fund’s public equity portfolio stood at $346.90 million at the end of June, representing an increase from $327.11 million at the end of the previous quarter. By the end of the second quarter the fund had opened 13 new positions, while selling out of ten previously-held stocks. In this article, we will talk about the former category: the three largest new positions held by the hedge fund, which are represented by Allergan Inc (NYSE:AGN), Restoration Hardware Holdings Inc (NYSE:RH), and Five Below Inc. (NASDAQ:FIVE).


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Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activity. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds partly underperformed because they aren’t 100% long. Hedge funds’ fees are also very large compared to the returns generated, which reduces the net returns delivered to investors. We uncovered through extensive research that historically, hedge funds’ long positions in certain stocks actually outperformed the market greatly, and it has held true to this day. For instance, the 15 most popular small-cap stocks among funds has beaten the S&P 500 Index by more than 66 percentage points since the end of August 2012. These stocks returned a cumulative of 123.1% vs. less than 57% for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying, particularly in the small-cap sector, rather than what their net returns are, which the media primarily focuses on.

John Croghan And Richard Fradin
John Croghan And Richard Fradin
Rail-Splitter Capital Management

Rail-Splitter held a new position in Allergan Inc. (NYSE:AGN) of 48,244 shares worth $14.64 million. This formed 4.22% of the fund’s total portfolio holdings and vaulted Allergan Inc. (NYSE:AGN) to the top spot in the fund’s portfolio. The company is a multi-specialty healthcare company focused on developing and commercializing innovative pharmaceuticals, biologics, medical devices, and over-the-counter products. With a market cap of $120.20 billion, the company is the third-largest generic drugmaker in the United States. On July 27, Teva Pharmaceutical Industries Ltd (NYSE:TEVA), the world’s largest generic pharmaceutical company announced that it will acquire Allergan, Inc. (NYSE:AGN)’s generic drugs business. Allergan, Inc. (NYSE:AGN) said the sale of its generics drug business will help it focus on the higher-margin and higher-profit branded medicines business. Under the deal, Allergan will be paid $33.75 billion in cash and $6.75 billion in Teva stock. Year-to-date stock Allergan, Inc. (NYSE:AGN)’s own stock has performed strongly, with gains of 28%. Andreas Halvorsen‘s Viking Global had the largest position in Allergan among the funds we track as of March 31, holding over 6.10 million shares.

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