Billionaire Wilbur Ross Maintains Top Bets; Swaps Etsy Inc (ETSY) for Fitbit Inc (FIT)

Restructuring specialist and billionaire Wilbur Ross‘ Invesco Private Capital is known for making concentrated bets on a few public companies and holding those bets for a long time. The recent 13F filing submitted by the firm with the SEC stands as an evidence of that investing style, which Invesco Private Capital has followed for many years now. According to the filing, Invesco Private Capital’s long US equity portfolio was worth $473.69 million at the end of June and had a quarterly turnover of only 28.57% during the second quarter. In that period, the fund initiated a stake in one stock, made additional purchases in one stock, sold out its entire holding in one stock, but didn’t reduce its stake in any of its holdings.

The filing also revealed that at the end of second quarter Invesco Private Capital’s equity portfolio consisted of only seven long positions and that more than half of the value of the fund’s equity portfolio was amassed by a single stock from the transport sector. In this post, we will take a look at the two major moves the fund made during the second quarter and will also discuss its top-three stock picks going into the third quarter.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points in our backtests that covered the period between 1999 and 2012 (see the details here).

Etsy Inc (NASDAQ:ETSY)

Let’s start with online marketplace Etsy Inc (NASDAQ:ETSY). During the second quarter, Invesco Private Capital sold all of the 35,400 shares that it had held at the end of March. However, the fund might be regretting that decision now as shares of Etsy Inc (NASDAQ:ETSY) have appreciated by 50.60% in the current quarter with most of those gains coming in last month after the company reported its second-quarter numbers. While the per share loss of $0.06 that Etsy reported for that quarter missed analysts’ estimate by $0.05, the revenue of $85.35 million was $4.8 million more than what analysts had expected. On September 14, analysts at Loop Capital initiated coverage on the stock with a ‘Hold’ rating and a price target of $14, which is very close to where the stock is trading currently. The ownership of Etsy Inc (NASDAQ:ETSY) among funds covered by us inched up by one to 16 during the second quarter, while the aggregate value of their holdings in it jumped by $37.9 million to $200.82 million.

Fitbit Inc (NYSE:FIT)

– Shares Owned by Invesco Private Capital (as of June 30): 98,693

– Value of The Holding (as of June  30): 1.2 Million

Fitbit Inc (NYSE:FIT) was a new entry in Invesco Private Capital’s equity portfolio during the second quarter. Shares of the wearable device manufacturer moved up swiftly after the company’s IPO last year, peaking at $51.90 in August 2015. However, they have lost more than two-third of their value since then and are currently trading down by 46% year-to-date. On September 8, the stock spiked by 8% after Mizuho’s analyst Betty Chen released a note in which she reiterated her ‘Buy’ rating on the stock and set a price target of $20 on it. In her note, Ms. Chen cited the favorable reviews that Fitbit Inc’s new products are getting, an addressable market that benefits from both iOS and Android compatibility, and increasing digital health opportunities as the reasons for her bullishness on the stock. Though the number of hedge funds covered by us long Fitbit Inc (NYSE:FIT) inched down by one to 29 during the second the quarter, the aggregate value of their holdings in the company during the same period increased by almost $24 million to $297.86 million.

On the next page, we will discuss the top three equity holdings of Invesco Private Capital as of the end of the second quarter.

#3 EXCO Resources Inc (NYSE:XCO)

– Shares Owned by Invesco Private Capital (as of June 30): 51.10 Million

– Value of The Holding (as of June  30): $66.43 Million

Invesco Private Capital kept its stake in EXCO Resources Inc (NYSE:XCO) unchanged during the second quarter and continued to remain the largest shareholder of the company at the end of that period, accounting for 18% of EXCO Resources Inc (NYSE:XCO)’s float. Unlike the stocks of other oil and natural gas companies, the stock EXCO Resources Inc (NYSE:XCO) hasn’t benefitted from the rally in energy prices this year and currently trades down by 11.29% year-to-date. In July, the company commenced a cash tender offer for its outstanding 7.5% Senior Notes due 2018 and outstanding 8.5% Senior Notes due 2022. Along with the tender offer, EXCO Resources also solicited consents from holders of the 2022 Notes to amend “certain terms” of the indenture governing the 2022 Notes. Last month, the company updated investors that it had secured the maximum tender cap allowance under its proposed tender offer and that the maximum allowance was reached entirely from the 2022 class. Following the departure of its former CFO, Richard Burnett, on August 22, EXCO Resources named its VP of Finance and Treasurer, Chris Peracchi, as the new CFO of the company. At the end of June, there were nine investors covered by us that were long EXCO Resources Inc (NYSE:XCO) with the aggregate value of their holdings in it amounting to $166.45 million.

#2 Sun Bancorp, Inc. /NJ (NASDAQ:SNBC)

– Shares Owned by Invesco Private Capital (as of June 30): 4.25 Million

– Value of The Holding (as of June  30): $87.93 Million

While Invesco Private Capital  didn’t make any changes to its stake in Sun Bancorp, Inc. /NJ (NASDAQ:SNBC) during the second quarter, billionaire Jim Simons‘ Renaissance Technologies upped its stake in the company during the same period by 9% to 107,379 shares. Sun Bancorp, Inc. /NJ (NASDAQ:SNBC)’s stock has been on a slow, but steady rise since mid-2012 and is trading close to its lifetime high of $23.25, which it reached earlier this month. For its most recent quarter, the bank holding company reported EPS of $0.16 on net interest income of $14.87 million versus analysts’ expectation of EPS of $0.08 on net interest income of $14.58 million. The ownership of Sun Bancorp, Inc. /NJ (NASDAQ:SNBC) among funds covered by us remained unchanged at six during the second quarter and the aggregate value of their holdings in it also remained nearly the same at $116.27 million.

#1 Navigator Holdings Ltd (NYSE:NVGS)

– Shares Owned by Invesco Private Capital (as of June 30): 21.86 Million

– Value of The Holding (as of June  30): $251.43 Million

For a long time now, Navigator Holdings Ltd (NYSE:NVGS) has held the top spot in Invesco Private Capital’s equity portfolio. Though the fund kept its stake in the company unchanged during the April-June period, it still amassed more than half of the value of Invesco’s equity portfolio at the end of June, which is quite a feat considering that Navigator Holdings Ltd’s stock has lost more than 60% of its value since the beginning of March this year. Several analysts who track the stock feel that its undervalued at current levels, especially when one takes into account that the company’s operating results have been fairly stable since mid-2014 and that Navigator Holdings Ltd owns a large number of modern ethylene-capable liquefied gas carriers. On September 12, analysts at Jefferies Group reiterated their ‘Buy’ rating on the stock. The number of hedge funds tracked by Insider Monkey that were long Navigator Holdings Ltd (NYSE:NVGS) increased by one to 16 during the second quarter, however, the aggregate value of their holdings in it fell by $112.60 million to $299.23 million during that time.

Disclosure: None