Adam Wright and Gary Kohler’s Blue Clay Capital performed much better than Index Funds in the first quarter, as its 27 long positions in stocks with a market cap above $1.0 billion as reported in its latest 13F filinghad weighted average returns of 15.4%. The S&P 500 ETF (SPY) on the other hand, delivered an average return of 0.9% during the same period. The large returns achieved by Blue Clay Capital’s picks, stem partially from the great performance of its holdings in Apple Inc. (NASDAQ:AAPL), Google Inc (NASDAQ:GOOG), JetBlue Airways Corporation (NASDAQ:JBLU), Select Comfort Corp. (NASDAQ:SCSS), and Ligand Pharmaceuticals Inc. (NASDAQ:LGND) at the start of the year.
Before launching Blue Clay Capital in 2012, Gary Kohler and Adam Wright worked together at Whitebox Advisors for five years. While Mr. Kohler has more than 25 years of experience in managing family offices and hedge fund assets, Mr. Wright specializes in investment banking and corporate development. The investment management firm they founded focuses on small- and mid-cap stocks, while seeking out long-term business opportunities by employing fundamental valuation analysis. Blue Clay Capital’s investment team has vast experience in both public markets and private equities, as well as in venture capital and corporate development.
Blue Clay Capital made a smart move by entering a position in Apple Inc. (NASDAQ:AAPL) during the fourth quarter. The fund’s holding in the company, which amounts to roughly 22,300 shares valued at $2.46 million, generated an average return of 13.17%. Although its stake in Apple might seem small, it represents almost 2% of the investment firm’s equity portfolio, which was valued at $136.86 million at the end of 2014. In addition to Blue Clay Capital, numerous hedge funds benefited from holding a position in Apple Inc. (NASDAQ:AAPL). William Harnisch’s Peconic Partners for example, was able to beat the market this quarter by betting on Apple. However, as one of the company’s largest shareholders among institutional investors with a stake of 52.76 million shares, Carl Icahn’s Icahn Capital LP had the most to gain from the stock’s solid performance.
Although Google Inc (NASDAQ:GOOG) did not perform as well as some of Blue Clay Capital’s other picks, it still managed to return 4.10% during the first quarter. The hedge fund holds 8,500 shares underlying call options, valued at $4.47 million, which represent 3.27% of the value of its equity portfolio. The fact that Blue Clay is betting on this stock comes as no surprise, since Google Inc (NASDAQ:GOOG) is one of the 10 most popular tech stock picks among hedge funds. Other firms holding a stake in the company include Boykin Curry’s Eagle Capital Management, Ken Fisher’s Fisher Asset Management, and Andreas Halvorsen’s Viking Global.
JetBlue Airways Corporation (NASDAQ:JBLU) was one of Blue Clay Capital’s most profitable stock picks, as it returned 21.37% this quarter. The fund owns 89,800 shares of the company’s stock, as well as 100,000 shares underlying call options. James Dondero’s Highland Capital Management has also been betting on JetBlue Airways Corporation (NASDAQ:JBLU) since the beginning of the year, disclosing ownership of 2.29 million shares in its most recent 13F filing.
Select Comfort Corp. (NASDAQ:SCSS) was Blue Clay Capital’s top pick this quarter, with the holding of 643,200 shares being valued at $17.39 million and representing almost 14% of its equity portfolio. Owning such a large stake in the company paid off in a big way, as the stock returned 27.53% this quarter. This was not only great news for Blue Clay, but also for Phillip Gross and Robert Atchinson’s Adage Capital Management, which owns 896,900 shares of Select Comfort Corp. (NASDAQ:SCSS)’s stock.
Ligand Pharmaceuticals Inc. (NASDAQ:LGND) had a superb first quarter, returning a whopping 44.92%, and thus performing far better than the other four stocks mentioned above. Blue Clay Capital’s stake in the company, which amounts to 41,600 shares, was valued at $2.21 million at the beginning of the year. If anything, the fund’s only regret regarding its investment in Ligand Pharmaceuticals Inc. (NASDAQ:LGND) was not acquiring an even larger position. Among the hedge funds we track, David M. Knott’s Dorset Management ranks as the company’s largest shareholder with a stake of 1.25 million shares.
Tracking the activity of hedge funds is a great way to discover investment opportunities for any investor seeking to beat the market. However, rather than betting on their large-cap picks, which tend to be more efficiently priced and thus offer smaller returns, a better approach is to focus on their positions in small-cap stocks. According to our research, the 15 most popular small-cap stocks among hedge funds outperformed the market by 1 percentage point per month between June 1999 and August 2012. As such, we devised a small-cap strategy and launched it at the end of August 2012 and it has returned more 132% over the past 2.5 years, beating the S&P 500 ETF (SPY) by over 80 percentage points.
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