Napier Park Lives Up To Billing; Picks Return 12.79% In Q2

In January, we covered Napier Park Global Capital, founded and managed by Jim O’Brien and Jonathan Dorfman, being awarded the title of 2015 Hedge Fund Manager of the Year by Risk Magazine. The hedge fund didn’t make us wait long to live up to the billing bestowed upon it by that title. According to our estimates, the 34 long equity positions Napier Park had on March 31 in companies with a market cap over $1 billion delivered strong weighted average returns of 12.79% during the second quarter of 2015, pushing the picks of the fund using this metric to 14.1% year-to-date. Note that these calculations exclude bonds and options and are only estimates based on previously held positions. The actual returns may be very different from our approximations. The results of the hedge fund look even more magnificent if we compare them with the performance of the most typical proxy for the US stock market, the S&P 500. The stocks comprising the index traded mostly sideways during the second quarter, closing with a mere 0.28% profit. In this article we would like to shed some light on some of the top performing investments of Jim O’Brien and Jonathan Dorfman during the most recent quarter, which are represented by Healthequity Inc (NASDAQ:HQY), Allergan PLC(NYSE:AGN) and Lions Gate Entertainment Corp (USA) (NYSE:LGF).

We don’t just track the latest moves of funds and stocks at Insider Monkey. We are, in fact, more interested in their 13F filings, which we use to determine the top 15 small-cap stocks held by the funds we track. We gather and share this information based on 16 years of research, with backtests for the period between 1999 and 2012 and forward testing for the last 2.5 years. The results of our analysis show that these 15 most popular small-cap picks have a great potential to outperform the market, beating the S&P 500 Total Return Index by nearly one percentage point per month in backtests. Moreover, since the beginning of forward testing in August 2012, the strategy worked brilliantly, outperforming the market every year and returning 139%, which is more than 80 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).

The total position of Napier Park Global Capital in Healthequity Inc (NASDAQ:HQY) included 4.03 million shares worth $100.75 million at the end of March. This $1.89 billion company is engaged in technology-based services platforms that allow consumers to make healthcare saving and spending decisions. So far this year, the stock of Healthequity Inc (NASDAQ:HQY) has returned around 28.92%, with the majority of that coming in the second quarter, at 28.25%, after gaining a boost from a strong earnings report. According to the company’s latest earnings call, it beat EPS estimates by $0.01, closing the first quarter with net profit of $0.10 per share, and with $29.85 million of revenues, which was up by 47.60% over the same period a year ago. Among the other prominent investors covered by our extensive database, one can find Crosslink Capital, led by Seymour Sy Kaufman and Michael Stark, which held some 341,963 shares of Healthequity Inc (NASDAQ:HQY), valued at $8.55 million.

According to the most recent 13F filing, Napier Park Global Capital held around 32.77 million shares of Allergan PLC (NYSE:AGN) valued at $9.75 million. During the second quarter the stock appreciated by 6.7%. On June 4, Bank of America Merrill Lynch reported an increase in the target price of this pharmaceutical giant, lifting it to $350 per share. The analysts believe that the stock of Allergan PLC (NYSE:AGN) still has 13-14% upside from where the price stands at present, as the growth potential has not been fully priced-in yet. Andreas Halvorsen‘s Viking Global held some 6.11 million shares of Allergan PLC (NYSE:AGN), valued at $1.82 billion, clearly believing in that potential as well.

The last on our list is Lions Gate Entertainment Corp (USA) (NYSE:LGF), in which Napier Park Global Capital trimmed its equity stake by 44% during the first quarter. After this adjustment the fund ended up holding 148, 243 shares of Lions Gate Entertainment Corp (USA) (NYSE:LGF) valued at some $5.03 million.  The investors in the stock of this company must be generally satisfied with the direction of its price movement. Lions Gate Entertainment Corp (USA) (NYSE:LGF) has returned around 18.18% in equity gains over the past year, not to mention a 0.26% dividend yield. During the second quarter of 2015 alone, the stock went up by 12.03%. The share price has mostly benefited from robust growth in the TV segment and lower administrative expenses, which led to a rise in operating profits. However, Lions Gate Entertainment Corp (USA) (NYSE:LGF), being one of the major players of the film industry, has reported a 19% decrease in film production segment sales. It raises the obvious question regarding whether the company still has any upward potential after the most recent rally. Mark Rachesky‘s MHR Fund Management held some 51.26 million shares worth $1.74 billion after the first three months of the year.

Disclosure: None