Clint Murray‘s Lodge Hill Capital’s equity picks from the latest 13F filing marginally beat S&P 500 ETF (SPY) during the first quarter as they appreciated by 1.7% against the ETF’s 0.9% gain. The metric includes all 27 of Lodge Hill’s equity holdings from the 13F filing, but doesn’t include other securities that have not been disclosed, which means that its actual returns might be significantly different from our estimate.
Lodge Hill is a spinout from one of the world’s largest quant funds, Citadel Investment Group. As of the end of 2014 the investment firm had $732 million assets under management and an equity portfolio worth about $642.64 million. The equity holdings are primarily concentrated in the industrial and consumer discretionary sectors, both of which form 37% and 27% of the portfolio value respectively. Another one of Citadel’s spin-out venture is the energy-focused Encompass Capital Advisors. These smaller sized spin-offs present a lesser chance of being scrutinized by the SEC than their behemoth of a parent. Major movers in Lodge Hill’s portfolio during the first quarter were Lennox International Inc. (NYSE:LII), Lennar Corporation (NYSE:LEN), Lumber Liquidators Holdings Inc (NYSE:LL), Gencorp Inc (NYSE:GY), and Deckers Outdoor Corp (NYSE:DECK).
Insider Monkey tracks hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of 6 basis points, though these stocks under-performed the S&P 500 Total Return Index by an average of 7 basis points per month between 1999 and 2012. These stocks were able to generate alpha because of their lower risk profile. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month. These stocks were slightly riskier, so their monthly alpha was 80 basis points (read the details here). Therefore, we believe investors will be better off by focusing on small-cap stocks rather than large-cap stocks.
Coming back to Lodge Hill and the performance of its picks during the first quarter, let us first have a look at Lennox International Inc. (NYSE:LII)‘s impressive performance during the period as it returned about 17.8%. The holding itself is the fund’s second largest with 308,700 shares valued at $29.35 million and representing 4.57% of the equity portfolio. The $4.99 billion company provides climate control solutions through three different segments. In its first quarter financial results Lennox International Inc. (NYSE:LII) revealed that while revenues from its Residential heating & Cooling business expanded by 6% to $363 million, Commercial Heating & Cooling and Refrigeration segments both contracted by 8% to $160 million and 9% to $163 million respectively on a yearly basis. Losses from foreign exchange further accentuated these dips. Another prominent shareholder of Lennox International Inc. (NYSE:LII) is Alexander Mitchell‘s Scopus Asset Management with 535,000 shares valued at $50.86 million as of the end of last year.
