Small-cap stocks provide investors with an opportunity to take advantage of market inefficiencies as these companies are relatively under-researched as compared with their larger counterparts, which receive considerably more attention from both analysts and investors. With this in mind we decided to look at the top small-cap picks of Lansdowne Partners, founded by Paul Ruddock (pictured) and Steve Heinz, according to the firm’s latest 13F filing. The companies heading this list include Manchester United PLC (NYSE:MANU), MGIC Investment Corp. (NYSE:MTG), and Ambac Financial Group, Inc. (NASDAQ:AMBC).
Launched in 1998, Lansdowne Partners is one of Europe’s oldest hedge funds. At the time of establishment it was one of only two European firms managing more than $1 billion. Currently, the firm has about $30.6 billion in assets under management. The fund’s reputation in the investing world can be summed up by the fact that Morgan Stanley Investment Management went on to acquire a 19% stake in it during 2006, which it still holds. Lansdowne’s bets against Barclays and Northern Rock in 2007 helped it to weather the financial crises. The original founders, however, are no longer in charge of the business, as Ruddock retired in 2013 to focus more on his charitable activities, although he is still a significant partner, and Heinz left the firm in 2014. The reins of the company have been passed on to CEO Alex Snow. The market value of Lansdowne’s public equity portfolio stood at $11.12 at the end of the first quarter with a majority of holdings belonging to the consumer discretionary and finance sectors.
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Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole. These small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period of 1999 to 2012. Moreover, since the beginning of forward testing from August 2012, the strategy worked just as our research predicted, outperforming the market every year and returning 144% over the last 32 months, which is more than 84 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
We kick off Lansdowne’s top small-cap picks with Manchester United PLC (NYSE:MANU), which occupied the top small-cap spot in Lansdowne’s public equity portfolio with the fund owning 3.93 million shares valued at $62.55 million of the iconic English football club. Lansdowne has held a position in the company since it went public during the third quarter of 2012. The $2.77 billion company has seen its stock price soar by 5.6% so far this year. In its fiscal 2015 third quarter financial results, Manchester United PLC (NYSE:MANU) beat the estimates for its bottom line, while delivering revenues that were in-line with the expectations. John Overdeck and David Siegel‘s Two Sigma Advisors hold 74,900 shares of Manchester United PLC (NYSE:MANU) valued at $1.19 million.
Next on the list is the $3.65 billion private mortgage insurer MGIC Investment Corp. (NYSE:MTG), in whom Landsowne significantly reduced its stake, by 1.19 million shares during the first quarter to about 768,200 shares valued at $7.40 million. MGIC Investment Corp. (NYSE:MTG)’s stock has appreciated by 16.2% year-to-date amid first quarter financial results that beat the estimates on both the top and bottom line fronts. A lower level of incurred losses and a modest growth in premiums earned as compared to the same quarter a year ago helped MGIC Investment Corp. (NYSE:MTG) during the first three months of the year. The company’s market share for the first quarter stood at 14%. Doug Silverman and Alexander Klabin’s Senator Investment Group and John Griffin‘s Blue Ridge Capital are the two largest stockholders of MGIC Investment Corp. (NYSE:MTG) within our database, with holdings of 14.41 million shares valued at $138.77 million and 14.9 million shares valued at $143.49 million respectively.
Another representative from the finance sector on the list is Ambac Financial Group, Inc. (NASDAQ:AMBC), in which Lansdowne also slashed its holding, by 50% during the quarter to 146,400 shares valued at $3.54 million. The stock of the $1.07 billion company has slid by 3.71% so far this year. Among the hedge funds that we track, the interest in Ambac Financial Group, Inc. (NASDAQ:AMBC) declined during the first quarter as 29 firms had an aggregate investment of $378.58 million in the company as compared to 31 funds with $424.23 million at the end of 2014. Aside from Lansdowne, Mark T. Gallogly‘s Centerbridge Partners is another stockholder of Ambac Financial Group, Inc. (NASDAQ:AMBC) with some 2.23 million shares valued at $53.92 million.
Disclosure: None
