Nathaniel August‘s $866 million long/short hedge fund Mangrove Partners is best known for its hefty 43.96% annualized returns in the three years following its launch in 2010. The fund employs a methodical screening-based sourcing model to identify mispriced equities. On the long side, the fund focuses on companies undergoing restructurings, asset-heavy businesses trading at significant discounts, and undervalued businesses trading at significantly discounted multiples. The short side makes bets on companies with flawed business models or those engaging in fraud. Prior to establishing Mangrove, August worked as a private-equity analyst at Goldman Sachs and was a director at the start-up hedge fund White Eagle Partners. Mangrove started out with just $12 million in assets and at the end of the first quarter, the market value of its public equity portfolio stood at $414.77 million, with the finance sector contributing 48% to this value. The fund initiated new positions in 14 companies, which were headed by Celladon Corp (NASDAQ:CLDN), Newfield Exploration Co. (NYSE:NFX), and Echostar Corporation (NASDAQ:SATS), and we’ll take a look at those new picks in this article.
Mangrove Partners is just one of more than 700 hedge funds that we have in our database, whose equity portfolios we collate quarterly as part of our small-cap strategy. Even though most smaller investors believe that tracking 13F filings is a fruitless endeavor because they are filed with a delay of a maximum of 45 days after the end of a calendar quarter, the results of our research prove that is not the case. To be on the safe side, we used a delay of 60 days in our backtests that involved the 13F filings of funds between 1999 and 2012 and we still managed to gain an annual alpha in the double digits. Moreover, since the official launch of our strategy in August 2012, our small-cap strategy has obtained returns of more than 142%, beating the S&P 500 Total Return Index by greater than 83 percentage points (see the details).
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Mangrove acquired 1.0 million shares of Celladon Corp (NASDAQ:CLDN) valued at $18.94 million during the first quarter. The holding represents 4.57% of the fund’s portfolio value. So far this year, the $52.36 million clinical-stage biotechnology company’s stock has slumped by nearly 90%, which explains Mangrove’s interest in the company. The major part of this decline came in April when Celladon Corp (NASDAQ:CLDN)’s genetically-targeted enzyme replacement therapy, Mydicar, a treatment for heart failure, delivered disappointing results during its Phase 2b trial. The biotechnology industry in comparison, has gained about 18% year-to-date. William Leland Edwards‘ Palo Alto Investors is the largest stockholder of Celladon Corp (NASDAQ:CLDN) within our database, holding some 1.45 million shares valued at $27.37 million.
Mangrove’s holding in its new bet in the energy sector, Newfield Exploration Co. (NYSE:NFX), comprised 387,200 shares valued at $13.59 million. The stake constituted 3.28% of the portfolio value. The stock of the $6.03 billion company engaged in the exploration and production of crude oil, natural gas, and natural gas liquids has posted hefty gains of over 36% year-to-date. The hedge fund interest in Newfield Exploration Co. (NYSE:NFX) among those that we track, has increased significantly over the last quarter, as 50 firms had invested a total of $1.47 billion in the company at the end of March compared to 41 funds with $703.21 million at the end of the previous quarter. Ken Griffin‘s renowned managed futures fund, Citadel Investment Group is the largest stockholder of Newfield Exploration Co. (NYSE:NFX) among these, holding about 10.34 million shares valued at $362.93 million.
Mangrove’s third-largest newly-initiated holding, in Echostar Corporation (NASDAQ:SATS), has also lost the favor of investors, as the stock has dipped by 3.5% year-to-date. In contrast the communication equipment industry is up by 1.38% during the same period. The $4.67 billion technology company provides satellite operations, digital set-top boxes, and broadband satellite technologies and services to enterprises and governments. Mangrove acquired some 225,300 shares of Echostar Corporation (NASDAQ:SATS) valued at $11.65 million during the first quarter. The company missed the estimates for both top and bottom lines in its latest quarterly financial results. Among the funds that we track, Jim Simons’ quant fund Renaissance Technologies is the largest stockholder of Echostar Corporation (NASDAQ:SATS), owning about 1.80 million shares valued at $93.15 million.
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