Alexander M. Seaver’s Stadium Capital Management trimmed its stake in Insperity Inc (NYSE:NSP) yet again this month, selling off 288,400 shares in two separate transactions. After shedding 281,100 shares last week, the hedge fund reduced its holding by an additional 7,300 shares on Monday. Stadium Capital now owns around 1.57 million common shares, representing 6.2% of the company’s outstanding stock, according to a filing with the SEC. Moreover, the filing also showed that the fund changed the nature of its stake to passive from activist. In contrast, Mr. Seaver’s firm is bullish on Columbia Banking System Inc (NASDAQ:COLB) and Ubiquiti Networks Inc (NASDAQ:UBNT), which constitute its top new picks, according to its latest 13F filing.
Stadium Capital was founded by Alexander Medina Seaver in 1997 and currently has around $400 million in assets under management. The New Canaan, Connecticut-based hedge fund favors a research driven stock-picking approach, inspired by the principals of Benjamin Graham and Warren Buffett. Since Stadium Capital is an activist fund, it often seeks to engage with management in order to push for changes that will enhance shareholder value, and thus allow it to obtain favorable returns. The fund invests primarily in public equity markets, with more than 90% of its equity portfolio consisting of stocks from the Industrial and Consumer Discretionary sectors. According to its latest 13F filing, Mr. Seaver’s firm boasted an equity portfolio valued at $398.77 million, up from $315.25 million the previous quarter. At the end of 2014, the hedge fund’s top picks were represented by Builders FirstSource, Inc. (NASDAQ:BLDR), Insperity Inc (NYSE:NSP), and Ascena Retail Group Inc (NASDAQ:ASNA).
Throughout the first quarter of 2015, Stadium Capital has been gradually reducing its exposure to Insperity. Whereas the fund disclosed ownership of 2.43 million shares last quarter, its current stake in the company amounts to 1.57 million shares. The reduction to its holding was certainly well-timed, as the stock has gained around 90% over the past six months, allowing Mr. Seaver’s firm to obtain hefty returns. Stadium Capital previously stated concerns regarding Insperity Inc (NYSE:NSP)’s poor performance, suggesting measures to improve shareholder value in a letter sent to the company’s management last year. The measures proposed by the fund included appointing three new directors to the company’s board, to be nominated by Stadium Capital, as well as dividing the role of CEO and Chairman, and exploring strategic alternatives.
Considering the recent surge in the stock’s share price, the hedge fund was not wrong in its assessment regarding the stock’s potential. In addition to Stadium Capital, Jeffrey Smith’s Starboard Value LP also holds an activist stake in the company. In January, this hedge fund acquired 2.20 million shares, and now ranks as Insperity Inc (NYSE:NSP)’s largest shareholder among institutional investors, with a position of 3.35 million shares. Mr. Smith’s firm also believes the company to be undervalued and urged management to take a potential sale into consideration. In a letter sent to Insperity’s management, Starboard recommended reducing operating expenses and improving capital allocation, as well as making changes to corporate governance.
In its latest 13F filing, Stadium Capital disclosed entering a new position in Columbia Banking System Inc (NASDAQ:COLB). Its stake in the company amounted to 957,800 shares, valued at $26.45 million, and representing 6.63% of the fund’s equity portfolio. Including Stadium Capital, 14 funds out of the 737 we track, owned shares of Columbia Banking System at the end of last quarter, holding an aggregate of around $173 million worth of stock. Mark Lee’s Forest Hill Capital was particularly bullish on the company, increasing its exposure to the stock by 45% last quarter to 1.55 million shares. The stock is down by 2% over the last 52 weeks amid high volatility. Columbia Banking System Inc (NASDAQ:COLB) reported earnings of $0.44 per share for the fourth quarter, beating the consensus estimate by $0.02 per share.
Stadium Capital also initiated a stake in Ubiquiti Networks Inc (NASDAQ:UBNT) last quarter, with the acquisition of 125,600 shares, valued at $3.72 million. Although the stock is down by around 39% over the last year, the company’s latest financial results showed positive signs. Ubiquiti Networks Inc (NASDAQ:UBNT) reported earnings per share of $0.53 for the fourth quarter, beating the consensus estimate of $0.48 per share set by analysts. Another fund betting on this stock is Charles Akre’s Akre Capital Management, which doubled its stake in the company last quarter, and currently owns 1.85 million shares.
Tracking the activity of hedge funds is one of the ways smaller investors can discover new investment opportunities. However, simply imitating the moves made by investment firms will get you nowhere, since their largest positions tend to be in large-cap stocks. These companies tend to be more efficiently priced and thus have a hard time beating the market. However, by gathering and analyzing information regarding hedge fund’s small-cap picks, we have devised a small-cap strategy that beat the market by more than 75 percentage points since its inception 2.5 years ago. From August of 2012 to March 11th of this year, our strategy returned 132%, compared to the 52.6% achieved by the S&P 500 ETF (SPY) during the same period.
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