5 Stocks Added to Swift Run Capital’s Portfolio in Q2

Swift Run Capital Management is a Virginia-based long/short equity hedge fund founded by Timothy Mullen in 2003. Mr. Mullen holds an M.B.A from Columbia University and before starting Swift Run Capital served as a Senior Investment and Portfolio Manager at VNB Trust, National Association. His fund recently submitted its 13F filing with the Securities and Exchange Commission for the reporting period of June 30, revealing a U.S. equity portfolio worth $156.64 million as of that date.

According to the filing, Swift Run Capital initiated a stake in 14 stocks during the second quarter, while adding to its position in six stocks, reducing its holding in 20 stocks, and selling off nine stocks completely. The filing also revealed that Swift Run Capital’s equity portfolio had a quarterly turnover rate of 40.07% and that its top-ten holdings accounted for over 55% of the value of its equity portfolio. In this post, we will take a look at five stocks that the fund added to its portfolio during the second quarter and try to determine what has the fund bullish on these stocks going into the second-half of 2016.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

Benguhan / shutterstock.com

Williams Partners LP (NYSE:WPZ)

 – Shares Owned by Swift Run Capital Management (as of June 30): 50,000

 – Value of Holding (as of June 30): $1.73 Million

Let’s start with Williams Partners LP (NYSE:WPZ)., which made its debut in Swift Run Capital Management’s equity portfolio as its 24th-most valuable holding. The rally in natural gas prices this year has led the shares of the Oklahoma-based energy infrastructure MLP to appreciate by 37.46% in 2016. Despite such a significant rise in its share price, Williams Partners LP (NYSE:WPZ) still sports an attractive annual dividend yield of 9.25%. The company recently reported its second quarter results, declaring a loss of $0.49 per share, a far cry from analysts’ expectations of EPS of $0.18. On August 8, Williams Cos. (NYSE:WMB) and Williams Partners LP announced that they have agreed to sell their Canadian businesses to Inter Pipeline for $1.26 billion. As part of the deal, Williams Cos. (NYSE:WMB) waived $150 million worth of incentive distribution rights in the current quarter to facilitate Williams Partners LP’s consent to the sale, in recognition of the value of inter-company contracts. Accounting for this waiver, Williams Partners LP will receive $817 million net consideration from the deal. The company plans to use the proceeds from the sale to reduce its borrowings on credit facilities. Leon Cooperman‘s Omega Advisors initiated a stake in Williams Partners LP during the first quarter, purchasing 1.19 million shares of the company.

Level 3 Communications, Inc. (NYSE:LVLT)

 – Shares Owned by Swift Run Capital Management (as of June 30): 59,980

 – Value of Holding (as of June 30): $3.09 Million

Level 3 Communications, Inc. (NYSE:LVLT) was Swift Run Capital’s 19th-largest equity holding at the end of the second quarter. The communication services company recently reported mixed numbers for its second quarter, which its stock took a beating for, pushing it down to losses of 7.62% year-to-date. While analysts had expected the company to report EPS of $0.44 on revenue of $2.08 billion for the quarter, Level 3 Communications, Inc. (NYSE:LVLT) reported EPS of $0.53 on revenue of $2.06 billion for that period. A day after the company released its second quarter earnings, analysts at JPMorgan Chase & Co. downgraded its stock to ‘Neutral’ from ‘Overweight’, while keeping their price target on it unchanged at $60.  On the other hand, analysts at BTIG Research initiated coverage on the stock with a ‘Buy’ rating and $63 price target on August 8. A hedge fund that upped its holding in Level 3 Communications, Inc. during the second quarter was Stephen J. Errico‘s Locust Wood Capital Advisers, which increased its stake by 24% to 714,930 shares.

We’ll check out the details of three other stocks added to Swift Run’s portfolio in the second quarter on the next page.