The stock picks of Swift Run Capital Management, a hedge fund managed by Tim Mullen, didn’t have a good run in the second quarter ended June 30 based on our calculations, which may be what compelled the diversified investor to significantly trim its portfolio. Our data shows that Swift Run’s stock picks as of March 31 in companies with a $1 billion market cap lost 2.3% during the second quarter. The return percentage is based on the weighted average returns of the 55 qualifying stocks in which the fund had a long position in as of March 31. Year-to-date, Swift Run’s picks are up by 1.1% using the same methodology to calculate its first quarter returns. At the end of the second quarter, the hedge fund had a public equity portfolio value of $168.04 million, 26.74% less than its portfolio value at the end of the first quarter of 2015. The second quarter saw the fund reduce its holdings in 30 stocks and completely sell out of two stocks. In this article, we consider three of its top stock picks, namely, Colony Capital Inc (NYSE:CLNY), Howard Hughes Corp (NYSE:HHC), and NorthStar Asset Management Group Inc (NYSE:NSAM); all of which posted negative returns for the second quarter.
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 139% over the last 34 months and outperformed the S&P 500 Index by 81 percentage points (see the details here).
While Colony Capital Inc (NYSE:CLNY) still remained Swift Run’s biggest holding at the end of the quarter, the fund reduced its position in the stock by 40.16% to 462,849 shares valued at $10.48 million, and representing 6.24% of its total portfolio. This stock was among the holdings that burned its returns during the quarter, featuring an equity loss of 11.2%. Colony Capital Inc, an international investment company based in Santa Monica, California, has been cited as a good investment among fairly-priced stocks, having delivered a dividend yield of 5.68% for the second quarter of 2015. The company’s combination with Colony Capital, LLC, made it an internally managed REIT, a step that has made it attractive with many investors as it cushions them from any external management fees.
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A total of 38 hedge funds from our database held long positions in Colony Capital Inc (NYSE:CLNY), with their aggregate investment valued at $993.31 million. Although the investment value increased, the total number of hedge funds with long positions remained the same. EJF Capital, managed by Emanuel J. Friedman, was the biggest shareholder among those with 10.20 million shares, representing 9.1% of its equity portfolio. Brian Jackelow’s SAB Capital Management came in second with 5.30 million shares, having reduced its position by 13.0%. The stock represented 13.42% of its total equity holdings going into the second quarter. Other notable funds that were bullish on the stock going into the second quarter were Kieran Goodwin’s Panning Capital Management, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital.