David Harding of Winton Capital Management had humble beginnings as a hedge fund manager, starting with a paltry $1.6mm in assets in 1997, a far cry from the billions he currently manages. He favors quantitative strategies and keeps diversified exposure to most sectors, with a slight preference to the Services industry. Winton recently released its 13F filing for Q4 2012, outlining the fund’s portfolio activity. We take particular interest in the small-cap holdings of funds like Winton as we have found that the most popular small-cap picks amongst hedge fund managers can provide substantial market-beating returns (learn more here). Read on to see our analysis of the fund’s largest initiations for the last quarter of 2012.
Of Harding’s seventy-seven new purchases, PetSmart, Inc. (NASDAQ:PETM) was the largest, with 0.58% of the fund’s assets under management. The pet supply retailer had a positive gain looking back twelve months, beating the market’s 8.4% return by four percentage points. PETM reported a positive Q3 2012, with quarterly growth in both revenue and earnings year over year; the company is due to report Q4 earnings on the sixth of March. PetSmart has received two downgrades to neutral since the start of this year, as Wall Street expects lower spending on pets due to higher payroll taxes. Ken Heebner of Capital Growth Management built a PetSmart, Inc. (NASDAQ:PETM) position in the last quarter of 2012 as well (see his fund’s holdings here).
Garmin Ltd. (NASDAQ:GRMN) also found its way into Winton’s portfolio. The stock has continued its 2012 decline into 2013, giving up 16% since the start of this year alone. GRMN recently posted an earnings miss on the twentieth of this month, providing insight as to where the depreciation can be attributed. The PND (personal navigation device) market has suffered considerably since the proliferation of navigation applications on smartphones, and the trend may continue as Microsoft’s mobile OS pushes its way into more phones in the future. On a more positive note, Garmin Ltd. (NASDAQ:GRMN) has the highest dividend yield of the stocks on this list, delivering 5.1% to investors. Billionaire Ken Griffin recently traded out of the majority of his cash and option positions (view his top picks here).
Hard drive and electronic storage manufacturer Seagate Technology PLC (NASDAQ:STX) was another addition, receiving a 0.42% allocation. Contrary to GRMN’s performance in the last year, Seagate Technology PLC (NASDAQ:STX) gave a market-beating return of 14% but is still 23% away from its 52-week highs. The company reported second-quarter fiscal 2013 earnings at the end of January, riding the recovery in the hard drive industry to deliver a beat. Although revenues rose compared to the prior-year quarter, gross profit and operating income were disappointing over the same periods. Billionaire David Einhorn dropped his position in half, according to his latest 13F (check out his portfolio here).
Where else did Winton find value?
The J.M. Smucker Company (NYSE:SJM) makes its way onto our list as well. The packaged food manufacturer has a number of household brands firmly planted in supermarkets across America; its coffee offerings (Dunkin’ Donuts, Folgers, K-Cup products) have lead to an improved bottom line in recent history. SJM acquired Sara Lee in 2012, which helped to boost net sales growth by almost $60mm according to its most recent earnings announcement. Expected fiscal 2013 contributions from the acquisition should lead to an increase of 6% in net sales. Billionaire Israel Englander recently cut the majority of his SJM holdings (view what is left here).
Sempra Energy (NYSE:SRE) is Winton’s last new pick that we’ll cover. The energy services holding company was a big winner for those who bought in this time a year ago, as the stock has delivered a gain of almost 30%. Each quarter in 2012 saw an earnings beat, and SRE has been bestowed with Buy ratings from Drexel Hamilton, JP Morgan, and ISI Group since the start of this year. SRE recently announced an increase in its dividend of 5%, moving the annual payout from $2.40 up to $2.52. Phill Gross and Robert Atchinson of Adage capital Management joined Harding in initiating a position as well in the last quarter of 2012 (see their top picks here).
Disclosure: I do not own shares of any stocks mentioned in this article.
