Paul Orlin‘s Amici Capital has increased its exposure to Era Group Inc (NYSE:ERA), as a new filing with the Securities and Exchange Commission shows. Amici currently holds around 1.13 million shares of the company, up from 761,200 shares disclosed in a previous filing. Following the increase, the passive stake amasses 5.5% of the company’s outstanding stock, up from 3.74% previously.
Era Group Inc (NYSE:ERA) is a small-cap company engaged in providing helicopter operation services, which was spun-off from Seacor Holdings, Inc. (NYSE:CKH), a provider of oil & gas equipment, as well as a services provider. Era Group’s stock grew by around 18% since it started trading at the end of January 2013, although over the last 52 weeks it has lost 27%. The decline could be connected to the company’s exposure to the oil and gas industry, since the majority of its clients are companies engaged in exploration and production. Moreover, the company’s latest financial statements showed that despite revenue growth to $331 million in 2014 from $299 million a year earlier, its earnings per share (EPS) declined to $0.84 from $0.88, on the back of higher operating costs.
Amici Capital has been holding shares of Era Group Inc (NYSE:ERA) since the company was separated from Seacor Holdings. The fund has also been holding shares of Seacor, Amici’s latest 13F filing disclosing ownership of 438,600 shares of that company. A couple of days ago, another hedge fund, Richard Mashaal‘s RIMA Senvest Management reported increasing its passive stake in Era Group to 1.05 million shares, equal to 5.13% of the company’s outstanding stock.
Amici Capital is a long/short hedge fund, whose name means “friends” in Latin. The name is not coincidental, but was picked to honor the first supporters of the fund. The late Alex Porter, the founder of Amici, asked about 30 people for seed money, but only three of his friends accepted, offering $360,000. Mr. Porter was a portfolio manager at A.W. Jones, which is considered the first hedge fund in the world. After A.W. Jones, Mr. Porter worked at Sanford Bernstein, before founding Porter Management in 1976. Porter Management was renamed into Porter Orlin in 2005 and seven years later became Amici Capital. Before Paul Orlin became the portfolio management of the fund in 1994, Mr. Porter’s fund had returned 20% per year on average since its inception. Until Mr. Porter’s death last year, the hedging strategy that the fund’s founder employed involved short-selling companies, where “financial legerdemain denotes something is seriously wrong,” according to Kathryn F. Staley’s book “The Art of Short-Selling”.
In its last 13F filing, Amici Capital disclosed an equity portfolio valued at $2.22 billion, highly diversified across sectors, with Healthcare, Technology, and Finance stocks amassing the largest portions at 23%, 20%, and 19% respectively. We follow Amici activity and track the companies in which it invests as a part of our analysis, which includes over 700 various hedge funds. Empirical research and backtests of the equity portfolios of these funds between 1999 and 2012 showed that the chance of beating the market by imitating the most popular stocks among hedge funds is very small. This is mainly due to the fact that hedge funds with large amounts of capital prefer to invest in large-cap and mega-cap companies, whose returns, even though steady, are very small and therefore a portfolio consisting of the 50 most popular stocks underperformed the market by around 7 basis points per month. However, this doesn’t mean that one should abandon monitoring hedge funds. Another finding of our research showed that imitating only the top small-cap picks of these investors can beat the market by as much as 1.0 percentage points per month. Based on these results, we have been sharing the most popular small-cap stocks among hedge funds since August 2012. This approach provided gains of 132% over the last 2.5 years, beating the S&P 500 by more than 75 percentage points (read more details here).
With this in mind, let’s take a look at Amici Capital’s three largest holdings as of the end of 2014. To give you an idea of the fund’s portfolio diversification, we should mention that these three positions amass only 16% of the equity portfolio, which is relatively small in comparison with some other investors, whose three largest holdings could represent as much as 60-70% of the portfolio value. On the first two spots are healthcare companies: United Therapeutics Corporation (NASDAQ:UTHR), in which Amici owns 1.09 million shares, valued at $140.68 million, as of the end of 2014, and BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), represented by a $137.60 million stake that contains 1.52 million shares.
Both companies are part of the biotechnology industry, which is not surprising, taking into account that investing in biotech stocks has proven to be a very profitable approach so far. However, if the biotech bubble is about to burst (according to many experts of late), Amici’s holdings in both United Therapeutics Corporation (NASDAQ:UTHR) and BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) don’t bear a lot of risk, since they only amass around 12% of the equity portfolio. Moreover, United Therapeutics Corporation (NASDAQ:UTHR), with a market cap of $8.1 billion, has a solid track record of revenue and earnings growth over the last several years. Another shareholder of the company is William Leland Edwards’ Palo Alto Investors, which owns 1.40 million shares as of the end of 2014.
BioMarin Pharmaceutical Inc. (NASDAQ:BMRN)’s stock meanwhile has been gaining ground not only on the back of the company’s performance, but also amid many takeover rumors. Last year Switzerland-based Roche was mentioned as a possible buyer, while last week Shire PLC (ADR) (NASDAQ:SHPG) appeared on the Street’s radars as a party that might be interested in BioMarin Pharmaceutical Inc. (NASDAQ:BMRN). However, so far all these rumors seem to be unfounded, and investors have been piling up capital into the company. One of the more bullish investors is Julian and Felix Baker‘s Baker Bros. Advisors, which added 1.34 million shares to its position during the last three months of 2014 and owns 3.71 million shares according to its latest 13F filing.
On the third spot in Amici Capital’s equity portfolio is Assured Guaranty Ltd. (NYSE:AGO), in which the investor holds close to 3.48 million shares, valued at $90.38 million. Biomarin and Assured Guaranty are two of the fund’s long-term picks and over the last years the investor has benefited from strong growth of both stocks. Assured Guaranty Ltd. (NYSE:AGO) is a small-cap insurance company engaged in providing credit protection products for the public finance and structured finance markets. The company has a ‘Buy’ consensus rating and a target price of $33 per share, which is approximately a 28% premium over the current price. Among the funds that we track, Amici owns the second-largest long position in Assured Guaranty Ltd. (NYSE:AGO), trailing Debra Fine’s Fine Capital Partners, which holds 5.61 million shares.
Disclosure: None
