Most U.S. equities struggled during the third quarter, which in turn pushed hedge fund investors and other money managers to re-balance their portfolios so as to maintain their risk/return characteristics. It appears that Bernard T. Selz and his team at Selz Capital LLC undertook a massive re-balancing process during the third quarter. In fact, the New York-based hedge fund significantly cut its exposure to U.S. equity markets, considering that it sold out 21 positions and reduced stakes in 15 stocks. The decline comes as Selz’s equity portfolio posted a loss of over 16% in the third quarter, based on our calculations that take into account the fund’s 40 positions in companies with market caps above $1.0 billion.
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However, the firm initiated four new positions and increased its holdings in an additional three stocks during the quarter. Hence, it is no surprise why the market value of Selz Capital’s equity portfolio decreased to $362.43 million from $554.04 million quarter-over-quarter. It is also worth mentioning that Selz Capital did not adjust most of its current top holdings, which might point to the fact that the investment firm has faith in the future performance of its top picks. Ultimately, the following article will discuss the top five holdings of Selz Capital at the end of the third quarter, including their performance during the “bloody” three-month period.
At Insider Monkey, we track 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 underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. 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 (read more details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 102% and beating the market by more than 53 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.
#5 Gilead Sciences Inc. (NASDAQ:GILD)
Number of shares held by Selz Capital as of June 30: 130,000 ($12.77 million)
Number of shares held Selz Capital as of September 30: 180,000 ($21.07 million)
Gilead Sciences Inc. (NASDAQ:GILD) represents a new addition to the list of top five stock picks of Selz Capital at the end of the third quarter. Nevertheless, the New York-based investment firm reduced its stake in the biopharmaceutical company by 50,000 shares during the latest three-month period. The shares of the company lost 15.80% over this time span, but have advanced more than 5% since the end of the third quarter. When looking at the broader picture, the stock is almost 10% in the green year-to-date. Gilead has been one of the best-performing biotech stocks and companies over the past few years, but the stock has taken a halt this year. The company’s third-quarter earnings report that will be released on October 26 is of crucial importance for the biotech company as a means of avoiding the sell-off in its industry. Cliff Asness’ AQR Capital Management reported owning 4.18 million shares in Gilead Sciences Inc. (NASDAQ:GILD) through the 13F for the June quarter.
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#4 Kinder Morgan Inc. (NYSE:KMI)
Number of shares held by Selz Capital as of June 30: 808,211 ($22.37 million)
Number of shares held Selz Capital as of September 30: 808,211 ($31.03 million)
Kinder Morgan Inc. (NYSE:KMI)’s stock performance has been disappointing this year, with its shares losing 25% year-to-date and 26.89% in the third quarter. The energy and energy infrastructure company has been primarily hit by the struggling oil market; hence, market participants might have become more concerned about the future of the company considering the current environment. This disappointing performance may also reflect the worries around the sustainability of its dividends, but Kinder Morgan’s management has the ability to moderate these concerns through the upcoming third-quarter earnings call. Daniel S. Och’s OZ Management is one of the top shareholders of Kinder Morgan Inc. (NYSE:KMI) with 13.11 million shares as of June 30.