As a new filing with the Securities and Exchange Commission shows, Daniel Gold‘s QVT Financial has initiated a passive stake in Aehr Test Systems (NASDAQ:AEHR). The position contains more than 1.41 million shares, which represent 9.99% of the company’s outstanding stock. The investor does not hold the shares directly, but via a convertible note with a value of $4.1 million. Moreover, Aehr Test and QVT’s agreement also involves a line of credit worth $2.0 million.
We track the activity of over 700 investors alongside QVT Financial and focus on their 13F filings in order to identify profitable investment opportunities. While many believe the 45-day delay in the filing period for 13Fs erases any opportunity for imitating the stock picks disclosed in them, we have proven that it is not the case by obtaining double-digit annual alpha through imitating a portfolio of the most popular small-cap picks of hedge funds, and that with a 60-day delay. Moreover, over the last 2.5 years, our strategy generated returns of 137%, which is higher than the S&P 500 ETF (SPY)’s gains by more than 80 percentage points (see more details here).
QVT Financial holds around $4.0 billion in assets under management and has an equity portfolio valued at around $2.0 billion as of the end of last year, highly diversified with 95 positions. However, the fund holds 63 long positions, the rest being represented by options or convertible debt. In addition, only 39 long positions are in companies with a market cap of more than $1.0 billion and they had weighted average returns of -1.4% for the first three months of 2014. However, the 1.4% loss doesn’t take into account any profits that QVT could’ve made from the options it held.
Aehr Test Systems (NASDAQ:AEHR) is a nano-cap company with a market cap of $27 million that develops and markets systems for burning-in, testing and reliability screening of complex logic and memory devices. The company’s stock is down by 16% over the last 52 weeks as Aehr Test Systems reported a decline in revenue in the last several quarters and turned to a loss from a profit. For the first quarter of 2015, Aehr Test Systems (NASDAQ:AEHR)’ revenue dropped to around $2 million from $6 million a year ago and it reported a loss of $0.14 per share, versus a profit of $0.02 in the first quarter of 2014. Due to the company’s small size, it’s not very popular among the funds we track. In fact, only two funds out of over 700 reported long positions in Aehr Test Systems (NASDAQ:AEHR) as of the end of 2014: Jim Tarantino and Chris Galvin’s Westerly Capital Management and Jim Simons‘ Renaissance Technologies, holding 712,000 shares and 99,600 shares respectively.
The fund’s largest stake, according to its latest 13F, is a massive holding of ‘Put’ options underlying 2.94 million shares of Lumber Liquidators Holdings Inc (NYSE:LL) with a value of $194.95 million. Meanwhile, the stock of the flooring retailer Lumber Liquidators Holdings plunged by 53% in the first three months of 2015, fueled by a TV report that alleged that some of the company’s products contained high levels of formaldehyde, which has been denied by its management. Therefore, if QVT exercised the options, it could have had a significant positive effect on the fund’s returns. However, QVT also owns a long position in Lumber Liquidators Holdings Inc (NYSE:LL), which contains nearly 741,600 shares as of the end of 2014. Aside from QVT, some of the other funds among those that we track own substantial long positions in Lumber Liquidators Holdings Inc (NYSE:LL), including Steve Cohen‘s Point72 Asset Management and Sharlyn C. Heslam’s Stockbridge Partners.
Another one of QVT’s picks that had a positive impact on its returns is Covidien plc (NYSE:COV), whose stock gained more than 4% from the beginning of 2015 until late January, when Medtronic PLC (NYSE:MDT) completed its acquisition and the stock was delisted. QVT initiated a stake with 1.50 million shares of Medtronic PLC (NYSE:MDT)’s acquisition target during the fourth quarter of 2014.
Halozyme Therapeutics, Inc. (NASDAQ:HALO), even though it doesn’t represent one of QVT’s top picks, also helped to offset some of the losses of its previous picks, as the stock of the $2.1 billion biopharmaceutical company advanced by 48% during the first quarter. However, in the previous three-month period, the investor halved its stake in the company to 2.01 million shares, worth $19.40 million at the end of 2014. The stock of Halozyme Therapeutics, Inc. (NASDAQ:HALO) is poised to gain even more ground, according to BMO Capital, which has recently set a $26.00 price target on the stock with a ‘Buy’ rating, a more than 50% upside over current trading levels of just under $17. Aside from QVT, David Cohen and Harold Levy’s Iridian Asset Management, Jean-Marie Eveillard’s First Eagle Investment Management, and Julian Baker and Felix Baker’s Baker Bros. Advisors also benefited from Halozyme Therapeutics, Inc. (NASDAQ:HALO)’s growth, being more bullish than QVT and holding on to their shares or even increasing their positions during the fourth quarter of 2014.
MakeMyTrip Limited (NASDAQ:MMYT) is another one of Daniel Gold’s picks that put some pressure on its returns as the stock dropped by 15.50% during the first quarter. MakeMyTrip Limited (NASDAQ:MMYT) is an India-based online travel company that operates a website with the same name and provides booking and trip planning services in India and overseas. Among the latest developments, MakeMyTrip has recently bought Indian startup Mygola, which also operates in the online travel market. QVT Financial edged up its position by 6% during the fourth quarter to 1.61 million shares valued at $41.97 million shares. The fund initiated a stake during the second quarter of 2014 and raised it in the following six months. However, as the stock has been losing ground since the middle of 2014, some investors took it as a sign and have been shedding shares. One of them is Chase Coleman’s Tiger Global, which at the beginning of February, reported holding 2.63 million shares of MakeMyTrip Limited (NASDAQ:MMYT), down from 3.61 million held previously and from 7.18 million shares held throughout the first half of 2014.
Disclosure: None
