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Steelhead Partners’ Return, AUM, and Holdings

Steelhead Partners is a hedge fund launched back in 1996 by Michael Johnston, Scott Schaefer, and Brain Klein. Its headquarters are in Bellevue, Washington, near Seattle. The fund mainly invests in undervalued companies from the Technology sector. Prior to co-founding Steelhead Partners, Michael Johnston and Scott Schaefer were employed at Prudential Insurance and Loews Corporation, while Brain Klein was an Executive at Goldman Sachs. Michael Johnston was a Senior Portfolio Manager and Senior Vice President at Loews Corporation and there he was in charge of an equity portfolio and corporate bonds. He earned a B.A. in Finance with honors from Texas Christian University, and an M.B.A from the Johnson Graduate School of Business at Cornell University.

Steelhead Partners’ Return, AUM, and Holdings

The fund’s investment strategy is centered around picking stocks according to the particular circumstances of companies, and not based on industry fundamentals. It seeks for undervalued “out-of-favor stocks” with a high probability of a good upside, and companies that are undergoing management changes. Steelhead Partners’ investment philosophy turned out to be wise, as the fund had seen some good returns. The only down year among those for which we have managed to track its return data was in 2008, when its Steelhead Pathfinder Fund lost 2.83% and its Steelhead Navigator Fund was also down 31.26%. Nevertheless, after this fall both funds have risen again, with Steelhead Pathfinder Fund generating a return of 28.24% in 2009, 12.06% in 2010 and 5.15% in 2011, and Steelhead Navigator Fund delivering a strong 49.56% in 2009, 21.29% in 2010, and 9.07% in 2011.

In the last five years, its Steelhead Pathfinder Fund had a constant positive performance, as it has generated a return of 9.50% in 2013, 0.46% in 2014, 1.55% in 2015, and even better 8.74% in 2016, and a solid 6.40% in 2017. The last year seems to have been favorable for Steelhead Pathfinder Fund, as it has returned 2.44% since January through October 29th. Its total return amounted to 164.60%, for a compound annual return of 7.82%, and its worst drawdown was 12.49. As per the fund’s plain brochure, on March 1, 2017, Steelhead Partners had around $861.4 million in assets on a discretionary basis.

Insider Monkey’s flagship strategy identifies the best performing 100 hedge funds at the end of each quarter and invests in their consensus stock picks. This way it is always invested in the best ideas of the best performing hedge funds and is able to generate much higher returns than the market. Since its inception in May 2014, our flagship strategy generated a cumulative return of 96.9%, beating the S&P 500 ETF (SPY) by over 40 percentage points (see the details here).

At the end of the third quarter 2018, Steelhead Partners’ equity portfolio was valued at $1.08 billion. The fund doesn’t like to invest in stocks that are in many hedge funds’ portfolios, hence at the end of Q3 it didn’t have a single position in one of 30 most popular stocks among hedge funds in Q3 of 2018. Even though the vast majority of holdings in its portfolio were holdings of bond options, there were a few common long positions from the previous quarter, one new and a few that the fund completely sold out. More details about these portfolio changes you can find on the next page.

The largest position the fund disclosed having on September 30, 2018, was in Globalstar, Inc. (NYSEAMERICAN:GSAT), a satellite communications company. The fund reported owning 32. 51 million Globalstar’s shares that were valued $16.52 million. Since the beginning of the year the company’s stock lost 67.97% and it is currently trading $0.41. There were 22 smart money investors from Insider Monkey’s database long Globalstar, Inc at the end of the third quarter, up from 19 at the end of June. The second largest long position in Steelhead Partners’ equity portfolio was in Oaktree Strategic Income Corporation (NASDAQ:OCSI), a specialty finance company, with the fund holding 226,519 shares that were worth $1.96 million. And, the third biggest position in the fund’s portfolio at the end of the third quarter was in Blackrock Capital Investment Corp (NASDAQ:BKCC) holding 307,377 shares with a value of $1.81 million.

Steelhead Partners initiated only one new long position during the third quarter of 2018, and that was in the BlackRock TCP Capital Corp (NASDAQ: TCPC). The fund purchased 25,612 shares outstanding, which were valued $364 million. BlackRock TCP Capital Corp is a management investment company, and over the past 12 months its stock has lost 8.49%, and at the moment of writing, it is trading at $13.79. There were 10 smart money investors from Insider Monkey’s database that were long this stock at the end of Q3 2018, up by one from Q2 2018.

During the third quarter of 2018, Steelhead Partners lost faith in several companies that were in its portfolio and completely sold out its positions. Among those companies were Arch Coal Inc (NYSE:ARCH), Mosaic Co (NYSE:MOS), and Centurylink Inc (NYSE:CTL). The fund dumped a position in Arch Coal that included 140,535 shares with a value of $11.02 million; in Mosaic, that counted 179,420 shares that were worth around $5.03 million, whereas the fund’s position in Centurylink was worth $6.97 million, on the account of 373,949 shares, before it sold it out.

Disclosure: None

This article was originally published at Insider Monkey.

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