Ken Fisher’s Fisher Asset Management is one of the largest funds out of the universe of over 700 hedge funds that we track at Insider Monkey. Few may know it, but Ken Fisher started his fund back in 1979 with only $250. Since then, the fund’s assets under management have made a pretty good exponential jump, to $54 billion, and Fisher has become quite rich himself in the process, standing today as a billionaire worth some $2.8 billion. A good chunk of his fund’s success is tied to its long stock picks, as the public equity portfolio of his fund comprises around 93% of its assets under management. In this article we would like to take a closer look at a specific niche of those picks, the top small-cap picks of the fund, represented by PAREXEL International Corporation (NASDAQ:PRXL), Aspen Technology Inc (NASDAQ:AZPN), and Webster Financial Corporation (NYSE:WBS), to see how they have performed this year and what they are made of.
A reader might question our decision to focus on the small-cap category, considering that its mostly the larger counterparts of these companies that head the portfolios of most hedge funds, including FIsher’s. The reason for our focus is simple. Our research has shown that in the period between 1999 and 2012 the top small-cap picks of hedge funds outperformed the broader market by nearly one percentage point per month, whereas the top overall picks (mostly large-caps) underperformed by seven basis points per month during the same period. Why pay high fees to own a glut of low-performing stocks when you can invest on your own in hedge funds’ best stock picks? Since its launch in August 2012, Insider Monkey’s small-cap strategy has outperformed the S&P 500 every year, returning over 139% since then, nearly 2.5 times greater than the S&P 500′s returns (read the details here).
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The first stock on the list of Fisher’s top small-cap picks is PAREXEL International Corporation (NASDAQ:PRXL), in which Fisher Asset Management held 2.43 million shares valued at $156.39 million on June 30. PAREXEL International Corporation (NASDAQ:PRXL) is a $3.57 billion biopharmaceutical outsourcing services company providing a range of expertise in clinical research, logistics, medical communications, and pharmaceuticals consulting. This year the stock of the company has already gained 16.36%, which, while impressive, is only about par for the course for the red-hot biotech sector. Yet, the analysts’ mean estimates suggest a further 13.04% upside potential for PAREXEL, from $64.65 at which it currently trades. Gotham Asset Management, headed by Joel Greenblatt, sat in second place among the largest shareholders of PAREXEL’s stock covered by our database after the second quarter of the year, holding some 1.27 million shares worth $87.34 million.
Keeping the Aspen Technology Inc (NASDAQ:AZPN)’s position unchanged, Fisher Asset Management finished the second quarter of 2015 with 2.34 million shares valued at $106.62 million. Aspen Technology Inc (NASDAQ:AZPN) is a global provider of process optimization software solutions, which are designed to manage and optimize plant and process design, operational performance, and supply chain planning. Over the second quarter of 2015, its stock price soared by 18.43%, mostly on favorable earnings results, as the company beat EPS expectations by 19.40%, posting $0.37 in earnings per share. Scott McLellan’s Marble Arch Investments topped the list of the most prominent shareholders in Aspen Technology Inc (NASDAQ:AZPN) with the total of 3.10 million shares valued at $119.40 million.
Finally, one can find around 2.68 million shares of Webster Financial Corporation (NYSE:WBS) valued at $106.00 million in Fisher’s equity portfolio. Webster Financial Corporation (NYSE:WBS) recently organized its annual investor day, during which the company’s top management laid out growth plans for different business lines for the next three years. The interesting thing is that the bank plans to increase its ROE from 8% to 10% over time. And these are not empty words, as it already allocates available capital to the highest growth businesses. For example, in the last four years the capital allocation to the health savings account and the commercial bank (high-value added divisions) has increased by 36%, whereas capital allocation to the community bank and private bank only increased by 9%. Michael Barnes and Arif Inayatullah’s Tricadia Capital Management held some 2.14 million shares of Webster Financial Corporation (NYSE:WBS) valued at $79.29 million. Note that the managers made a substantial 98% boost to their stake in the company during the first quarter of the year.
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