Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Under-The-Radar Financials Identified By Consector Capital and Second Curve

The finance sector has appreciated by almost 21% over the past year. While some of the big names operating in the sector reflect this uptrend, we decided to look at how the smaller companies are progressing in their relative anonymity. To this end we decided to look at the top equity holdings of two prominent finance-focused hedge funds, Tom Brown’s Second Curve Capital and William Black‘s Consector Capital. The list of their shares bets in the sector includes Bancorp Inc (NASDAQ:TBBK), NewStar Financial Inc (NASDAQ:NEWS), OFG Bancorp (NYSE:OFG), and First Bancorp (NYSE:FBP).

Thomas Brown

After working for many top firms including Smith Barney and veteran investor Julian Robertson’s Tiger Management, Tom Brown launched his own fund, Second Curve Capital in 2000. On the other hand the New York-based Consector Capital was founded in 2008 and uses a bottom-up approach to seek candidates for its absolute value approach, based on long-term capital appreciation. At the end of March, the market value of its public equity portfolio stood at $167.62 million as compared with $253.24 million for Second Curve.

Tom Brown
Tom Brown
Second Curve Capital

Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 85 percentage points since the end of August 2012. These stocks returned a cumulative of 145% vs. less than 60% for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).

Coming back to the less researched financial stocks, Second Curve held about 6.11% of Bancorp Inc (NASDAQ:TBBK)’s outstanding stock while Consector held another 3.53% at the end of the first quarter. The respective holdings of the two funds amounted to 2.30 million shares valued at $20.81 million and 1.33 million shares valued at $12.01 million. So far this year Bancorp Inc (NASDAQ:TBBK)’s stock has slid by about 3.6%. The $396 million financial holding company has delayed the filing of its first quarter financial results owing to what it deemed to be a re-examination of time sequencing of loan loss provisions for a discounted commercial lending operation. Just this month Piper Jaffrey initiated coverage on Bancorp Inc (NASDAQ:TBBK) with an ‘Underweight’ rating and a $16 price target, which provides a 52% upside from the current trading levels. After Second Curve, Robert I. Usdan and Wayne K. Goldstein’s Endicott Management is the largest stockholder of Bancorp Inc (NASDAQ:TBBK) within our database, holding about 1.66 million shares valued at $14.95 million.

Both Second Curve and Consector reduced their holdings in NewStar Financial Inc (NASDAQ:NEWS) during the first quarter, the former by 27% to 2.11 million shares valued at $24.74 million and the latter by 17% to 789,800 shares valued at $9.26 million. Shares of the $513 million commercial finance company have lost 12.8% of their value year-to-date. Among the funds that we track, D.T. Ignacio Jayanti‘s Corsair Capital LLC is the largest shareholder of NewStar Financial Inc (NASDAQ:NEWS), with some 9.54 million shares valued at $111.89 million.

William Black
William Black
Consector Capital

Next in line is OFG Bancorp (NYSE:OFG) and the two funds have competing outlooks towards the company’s prospects given their activity during the first three months. While Second Curve increased its stake by 47% to 724,600 shares valued at $11.83 million in the Puerto Rico-based financial company, Consector slashed its holding by 33% to 515,600 shares valued at $8.41 million. So far this year OFG Bancorp (NYSE:OFG) has depreciated by more than 15%. Porter Collins, Daniel Moses, and Vincent Daniel’s Seawolf Capital is the largest shareholder of OFG Bancorp (NYSE:OFG) among those that we track, holding about 886,400 shares valued at $14.47 million.

Both funds slashed their stakes in First Bancorp (NYSE:FBP) during the first quarter despite the stock appreciating by almost 10% year-to-date. Second Curve disposed of 653,000 shares to drop its holding to 859,500 shares valued at $5.33 million, while Consector Capital slashed its holding by 15% to 2.52 million shares valued at 15.62 million. Although First Bancorp (NYSE:FBP) managed to beat the bottom line estimates for its first quarter financial results, revenues came in lighter than expected. Howard Marks’ Oaktree Capital Management is the largest stockholder of First Bancorp (NYSE:FBP) within our database, holding some 41.84 million shares valued at $259.43 million.

Disclosure: None

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.