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.
Lennar Corporation (NYSE:LEN) was another one of Lodge Hill’s strong performers as it appreciated by 15.72% during the first quarter. Lodge hill’s stake in the real estate company amounted to 445,000 shares valued at $19.94 million. The largest stockholder of Lennar Corporation (NYSE:LEN) among the funds that we track is Ken Heebner‘s Capital Growth Management. The recent data from U.S. Department of Housing and Urban Development shows that home ownership is continuing its strong growth. Sale of single-family houses increased by 15.2% in February from last month to 539,000, which is also about 24.8% higher than last year’s figure for the same month. Lennar Corporation (NYSE:LEN) is rising on the back of this trend.
Murray also faced some disappointments during the first quarter, and Lumber Liquidators Holdings Inc (NYSE:LL) was a top contender in that department as it fell by about 53.58% during this period. The fund’s stake in the retailer of hardwood flooring stood at 277,500 shares valued at $18.40 million. The fate of Lumber Liquidators Holdings Inc (NYSE:LL) was sealed by the TV show ’60 Minutes’ which alleged that the levels of formaldehyde in some of the company’s flooring products exceeded the safety range. An investigation by the Consumer Product Safety Commission (CPSC) is still underway. Sharlyn C. Heslam‘s Stockbridge Partners also suffered at the hands of Lumber Liquidators Holdings Inc (NYSE:LL) as it held about 1.97 million shares valued at $130.64 million at the end of 2014.
Gencorp Inc (NYSE:GY)‘s first quarter gains of 26.72% make it the best performer on this list of Lodge Hill’s top holdings. The fund’s stake amounted to 988,500 shares valued at $18.09 million. A subsidiary of Gencorp, European Space Propulsion (ESP), which provides in-space chemical and propulsion products recently received a contract for the development of a 5 kilowatt Hall Thruster Thermo Throttle from Airbus Space and Defense and Thales Alenia Space. The company also has Mario Gabelli’s vote of confidence as his fund, GAMCO Investors holds about 5.32 million shares of Gencorp Inc (NYSE:GY) valued at $97.40 million.
Another hit for Lodge Hill from the first quarter is Deckers Outdoor Corp (NYSE:DECK), whose stock slid by 19.96% during the period. The stock of the manufacturer of innovative footwear, apparel and accessories slid after an earnings miss for the third fiscal quarter and a weak guidance provided by the company. The analysts at Goldman Sachs feel positive about the company’s future prospects as they raised their rating to buy from neutral in February, but cut the price target to $90 from $95. Murray holds about 196,700 shares of Deckers Outdoor Corp (NYSE:DECK) valued at $17.91 million. The largest stockholder of the company is Donald Chiboucis’ Columbus Circle Investors, according to our database of hedge funds.
Disclosure: None
