Silver Capital Management’s New Top Holdings at the End of Q1

Bruce Silver‘s Silver Capital Management recently filed its 13F form with the SEC for the first quarter. Let us have a look at how the fund has geared its equity portfolio for the second quarter. Assets under the fund’s management are valued at about $180 million, while the market value of its equity portfolio at the end of the first quarter stood at just $17.08 million. The top five holdings were AdCare Health Systems, Inc. (NYSEMKT:ADK), NorthStar Asset Management Group Inc (NYSE:NSAM), Webster Financial Corporation (NYSE:WBS), Liberty Global plc – Class A Ordinary Shares (NASDAQ:LBTYA), and E*TRADE Financial Corp (NASDAQ:ETFC).



The investment philosophy at Silver Capital Management is to actively manage portfolios to take advantage of the economic and market cycles. This is also shown by the fund’s relatively high turnover ratio of 71.88% for the March quarter. The prospective investments are evaluated on the basis of their historical and current valuation metrics such as earnings multiples and return on equity etc. and compared with other companies operating in the same sector.

We follow the activity of hedge funds, based on the research conducted by Insider Monkey’s founder Dr. Ian Dogan’s research. The backtests involving hedge funds’ equity portfolios between 1999 and 2012 revealed that 50 most popular stocks among hedge funds underperformed the market by 7 basis points per month. In the last two years, equity hedge funds had average returns of 11.1% and 1.4% respectively, which shows that an investor was better off by allocating his money in an index fund such as the S&P 500 ETF (SPY), which returned 32.3% and 13.5% during the same period. However, we consider that we can combine the pricing inefficiencies among small-cap picks with hedge fund expertise and obtain significant results. In forward tests since 2012, this strategy, that involves imitating most popular small-cap picks among hedge funds, managed to provide gains of 132%, beating the broader market by some 80 percentage points (see details here).

AdCare Health Systems, Inc. (NYSEMKT:ADK) moved to the top spot as Silver Capital’s largest equity holding and represents 9.63% of the fund’s portfolio value. The stake remained unchanged over the quarter at about 375,600 shares valued at $1.65 million. AdCare Health Systems, Inc. (NYSEMKT:ADK) is undergoing a transition which involves a significant change of the company’s business model from an owner and operator of healthcare facilities to a property holding and leasing company. The plan was put into action in the fourth quarter when the company had just three sub-leased properties. By April AdCare Health Systems, Inc. (NYSEMKT:ADK) had entered into leasing agreements for 35 of their 40 healthcare facilities.  Paul Orlin and Alex Porter’s Amici Capital and Jim Simons‘ Renaissance Technologies are two other stockholders of AdCare Health Systems, Inc. (NYSEMKT:ADK).