With $952 million worth of assets under management and 11 employees on its payroll, Jeffrey Bronchick‘s Cove Street Capital might not rub shoulders with its larger counterparts, but the relatively small size of the firm hasn’t shook his staunch belief in value investing. By following this investment philosophy, the fund aims to profit from market inefficiencies caused by short-term myopic investors that pay more heed to a company’s quarterly earnings and are engaged in news chasing. By keeping a concentrated portfolio, the fund aims to conduct a rigorous in-depth analysis of each of its holdings. The finance and consumer discretionary sectors were the largest contributors to Cove Street’s equity portfolio at the end of the first quarter. They each represented 27% of the $762.51 million portfolio. A total of 21 new positions were initiated during the quarter, headed by Dreamworks Animation Skg Inc (NASDAQ:DWA), International Business Machines Corp. (NYSE:IBM), and Actuant Corporation (NYSE:ATU).
Most investors don’t have enough time to do an in-depth analysis on each stock that they want to include in their portfolios. Professional investors like Jeffrey Bronchick on the other hand spend weeks conducting due diligence on each company they consider investing in, and spend millions obtaining information and paying the salaries of Ivy League-educated analysts. That’s why we have always believed that imitating the stock picks of hedge funds and billionaires is an excellent short cut we can take. It doesn’t cost an arm and a leg either. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of hedge funds performed far better than the market as well as their own large-cap picks. A portfolio of the 15 most popular small-caps got even better in the forward tests we have been conducting since the end of August 2012, returning an eye-popping 139% and beating the market by more than 80 percentage points since then (see the details here).
Dreamworks Animation Skg Inc (NASDAQ:DWA) was the largest of the newly initiated stakes of Bronchick’s, with some 878,807 shares valued at $21.27 million. The holding represented 2.79% of Cove Street’s portfolio value. The $2.13 billion creator of animated feature films, television programs and online virtual worlds has appreciated by nearly 13% year-to-date. Dreamworks Animation Skg Inc (NASDAQ:DWA) is in a transition phase, with 2015 set to be another losing year for the company. According to the company’s latest financial results it can be seen that at least some of these changes have started to bear fruit, as for example, revenues from the feature films segment rose 16% to $128 million as compared to the same quarter last year. Dreamworks Animation Skg Inc (NASDAQ:DWA)’s CEO, Jeffrey Katzenberg cited the impressive performance of the animation feature Home, to indicate that the company’s core business is making a turnaround. Murray Stahl‘s Horizon Asset Management is the largest stockholder of Dreamworks Animation Skg Inc (NASDAQ:DWA) among the funds we track.
The second largest new entrant in Cove Street’s equity portfolio is International Business Machines Corp. (NYSE:IBM), which accounted for 1.45% of the portfolio’s value. The ailing $167.95 billion technology company has partially made up for its slide since 2013 by gaining some 7.38% so far this year. Cove Street held nearly 69,000 shares of International Business Machines Corp. (NYSE:IBM) valued at $11.07 million at the end of March. Legendary investor Warren Buffett of Berkshire Hathaway is another strong supporter of the company and has been increasing his exposure to IBM during the company’s downturn. His holding company held 76.97 million shares of International Business Machines Corp. (NYSE:IBM), according to its latest filing as of the end of 2014. The tech company recently launched cloud-based services geared towards enterprises and developers who are looking to extract meaningful data from Twitter. Among other ventures that IBM has recently engaged in is its partnership with Facebook Inc (NASDAQ:FB) to provide the ad clients of the social media platform with better cloud-based marketing apps for improved targeting of audiences.
The third largest newly-initiated stock was in Actuant Corporation (NYSE:ATU) with nearly 446,000 shares valued at $10.59 million. The holding constituted 1.39% of the fund’s portfolio value. This year has been tough for the $1.43 billion designer, manufacturer and distributor of industrial products, as its stock has slid into the red by 10.1% year-to-date. Actuant Corporation (NYSE:ATU) disappointed investors with the financial results from its fiscal 2015 second quarter, which were marked by an EPS of $0.28 missing estimates by $0.02 and $301 million in revenues that fell short of expectations by $7.58 million. While sales from the company’s industrial and energy segments climbed by 2%, the engineered solutions segment saw a decline of 8% year-over-year. This was coupled with a net $82 million non-cash impairment charge and losses owing to foreign currency rate changes. Actuant Corporation (NYSE:ATU) is also in favor with other fund managers including Brian Bares and Richard S. Pzena.
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