Anthony Brenner co-founded Pivot Point Capital with Raj Moorthy in 2005 after having spent nearly five years as Managing Director at Crosslink Capital. Mr. Brenner has over three decades of experience in venture capital, private equity and small-cap public investments. He obtained a BA degree in Economics at the Yale University and an MBA at the Stanford Graduate School of Business, where he graduated in the top 10% of the class. Mr. Moorthy obtained his MBA at the Harvard Business School and prior to joining Pivot Capital, had worked in the private equity group at Audax Group.
The San Francisco-based hedge fund invests in US-listed small-cap companies and has a small investment team, which aside from Mr. Brenner and Mr. Moorthy also includes Vice Presidents Namir Chowdhury and Andy Juang. Pivot Point holds a concentrated portfolio, which generally includes from eight to twelve positions. The fund has a watch list of 80 to 100 companies, which typically have a market capitalization between $500 million and $3.0 billion. It identifies companies based on the quality of their business model, competitive position, revenue growth potential, high free cash flow, and the strength of their management team. After selecting companies for its watch list, it keeps monitoring their activity looking for events that could send its stock below its long-term intrinsic value.
Brenner’s fund focus on a small group of companies, allows them to focus extensively on research and analysis and, because they invest primarily in small-cap companies, they can enjoy bigger profits due to the high growth potential that small-caps provide over their larger peers. Pivot Point often invests in companies whose stock has plummeted due to market overreaction to developments that are considered as threatening to the financial performance, but, due to extensive research, the fund can assess the real impact on the stock price and invest in undervalued companies. The strategy also involves holding stocks for one to three years until the issues affecting the stock price is resolved and investors again have a positive opinion about the company. In addition, large and concentrated investments allow Pivot Point to be a large shareholder, which, in turn, offers good access to management. However, this approach also poses some risks, such as the volatility of the small-cap stocks and the higher loss potential due to lack of sufficient portfolio diversification.
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Pivot Point Capital currently has $230 million in regulatory assets under management. In its latest 13F filing, it disclosed an equity portfolio worth $108.14 million as of the end of June, down from $151.56 million a quarter earlier. In line with the fund’s strategy, the portfolio contains only five holdings after the fund closed four positions during the second quarter. On the next pages, we are going to take a closer look at the companies that Pivot Point Capital is currently invested in.
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Following funds like Pivot Point Capital can be a good strategy to identify profitable investment opportunities without having to pay large fees that these funds require from their investors. Larger investors have more experience and more skills that they use in their research process and because they invest more capital they can enjoy more access to a company’s management than smaller investors. Another way to piggyback on larger funds is to analyze the stocks that they are collectively bullish on. This is what we do at Insider Monkey, where we follow over 650 different hedge funds and analyze their quarterly 13F filings in order to identify the best small-cap stocks to follow them into. We share the stock picks from our investment strategy with subscribers to our monthly and quarterly premium newsletters (see more details here).
1. Blackhawk Network Holdings Inc (NASDAQ:HAWK)
In Blackhawk Network Holdings Inc (NASDAQ:HAWK), Pivot Point Capital initiated a stake during the second quarter of 2015 and currently holds 806,384 shares of the company worth $35.16 million as of the end of June. During the second quarter, the fund unloaded 111,800 shares, after having sold another 36,800 shares a quarter earlier. Blackhawk Network Holdings Inc (NASDAQ:HAWK) has gained over 22% since April 2015 as the distributor of prepaid cards registered substantial annual revenue growth in most quarters. The company also enjoys a strong competitive advantage as it has a wide network of content providers and over 240,000 retail locations.
2. Watts Water Technologies Inc (NYSE:WTS)
Watts Water Technologies Inc (NYSE:WTS) is the oldest position in Pivot Point Capital’s equity portfolio, as the fund has held shares of the company since the middle of 2011. At the end of June, it owned 381,117 shares of Watts Water Technologies Inc (NYSE:WTS) worth $24.09 million, which represented over 22% of its equity portfolio. In the meantime, the company’s stock has surged by over 80% and the company has been regularly increasing its dividend to the current $0.19 from the $0.11 per share it paid in 2011.
3. Clean Harbors Inc (NYSE:CLH)
In Clean Harbors Inc (NYSE:CLH), Mr. Brenner’s fund holds a $23.54 million stake that contains 421,584 shares, down by 14% on the quarter. Pivot Point first invested in Clean Harbors Inc (NYSE:CLH), a provider of environmental services, in 2012, but the stock is over 12% in the red in the last five years, which could be attributed to lower levels of industrial activity and weaker oil prices which reduced the amount of exploration and production activity in the sector. However, as analysts are positive that the US manufacturing might be expanding and a rebound in oil prices will lead to more drilling, which could result in higher revenues for Clean Harbors Inc (NYSE:CLH), which are already picking up, according to the company’s last several quarterly reports.
4. Carter’s, Inc. (NYSE:CRI)
During the second quarter, Pivot Point increased its position in Carter’s, Inc. (NYSE:CRI) by 15% to 180,100 shares worth $16.02 million. The fund acquired a stake in the company during the fourth quarter of 2016 amid Carter’s, Inc. (NYSE:CRI) receiving analyst downgrades and missing both top- and bottom-line estimates in its third-quarter financial results. Since the beginning of the year, the stock has inched down by nearly 2%, even though the company posted better-than-expected profits and revenue for the last three quarters and has raised its dividend earlier this year to $0.37 from $0.33.
5. Monro Muffler Brake Inc (NASDAQ:MNRO)
Monro Muffler Brake Inc (NASDAQ:MNRO) is another company added to Pivot Point’s equity portfolio during the fourth quarter of 2016. Between April and June, the investor almost quadrupled its position to 223,600 shares worth $9.33 million. The stock of the provider of undercar repair and tire services is down by over 22% so far, this year, amid increasing concerns that Amazon.com, Inc. (NASDAQ:AMZN) might be increasing its presence in the tire market. The eCommerce giant has struck deals with several auto parts makers earlier this year. Earlier this year, Stephens downgraded Monro Muffler Brake Inc (NASDAQ:MNRO) to ‘Equal Weight’ from ‘Overweight’ after having issued a note that the involvement of Amazon in the tire market could affect Monro’s financials. Tires account for nearly a half of Monro Muffler Brake Inc (NASDAQ:MNRO)’s sales.
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