Rail-Splitter Capital Management was founded in 2002 and is overseen by John Croghan and Richard Fradin. It is a Chicago, Illinois based-hedge fund which focuses on fundamental research, deep sector experience, and valuation discipline. The hedge fund recently filed its 13F Form with the U.S. Securities and Exchange Commission, revealing its public equity holdings as of the end of the second quarter of 2015. The fund had 31% of its holdings invested in technology stocks, 24% in healthcare stock, and 22% in consumer discretionary companies. The market value of the fund’s public equity portfolio stood at $346.90 million at the end of June, representing an increase from $327.11 million at the end of the previous quarter. By the end of the second quarter the fund had opened 13 new positions, while selling out of ten previously-held stocks. In this article, we will talk about the former category: the three largest new positions held by the hedge fund, which are represented by Allergan Inc (NYSE:AGN), Restoration Hardware Holdings Inc (NYSE:RH), and Five Below Inc. (NASDAQ:FIVE).
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Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activity. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds partly underperformed because they aren’t 100% long. Hedge funds’ fees are also very large compared to the returns generated, which reduces the net returns delivered to investors. We uncovered through extensive research that historically, hedge funds’ long positions in certain stocks actually outperformed the market greatly, and it has held true to this day. For instance, the 15 most popular small-cap stocks among funds has beaten the S&P 500 Index by more than 66 percentage points since the end of August 2012. These stocks returned a cumulative of 123.1% vs. less than 57% for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying, particularly in the small-cap sector, rather than what their net returns are, which the media primarily focuses on.
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Rail-Splitter held a new position in Allergan Inc. (NYSE:AGN) of 48,244 shares worth $14.64 million. This formed 4.22% of the fund’s total portfolio holdings and vaulted Allergan Inc. (NYSE:AGN) to the top spot in the fund’s portfolio. The company is a multi-specialty healthcare company focused on developing and commercializing innovative pharmaceuticals, biologics, medical devices, and over-the-counter products. With a market cap of $120.20 billion, the company is the third-largest generic drugmaker in the United States. On July 27, Teva Pharmaceutical Industries Ltd (NYSE:TEVA), the world’s largest generic pharmaceutical company announced that it will acquire Allergan, Inc. (NYSE:AGN)’s generic drugs business. Allergan, Inc. (NYSE:AGN) said the sale of its generics drug business will help it focus on the higher-margin and higher-profit branded medicines business. Under the deal, Allergan will be paid $33.75 billion in cash and $6.75 billion in Teva stock. Year-to-date stock Allergan, Inc. (NYSE:AGN)’s own stock has performed strongly, with gains of 28%. Andreas Halvorsen‘s Viking Global had the largest position in Allergan among the funds we track as of March 31, holding over 6.10 million shares.
Rail-Splitter’s new position in Restoration Hardware Holdings Inc (NYSE:RH) consists of 102,823 shares valued at $10.04 million at the end of the second quarter. It formed 2.89% of its total portfolio holdings. Restoration Hardware Holdings, Inc. (NYSE:RH) is a holding company, which together with its subsidiaries, deals in luxury home furnishings in various categories, including furniture, lighting, textiles, bathware, decor, outdoor and garden, tableware, and children’s furnishings. The US-based company has a market cap of $4.05 billion, and operates through a total of approximately 67 retail stores and over 17 outlet stores. The stock of Restoration Hardware Holdings Inc (NYSE:RH) has appreciated by 10.18% this year, and analysts see 4% more upside potential remaining from current trading levels. The company reported a profit of $7.15 million in the quarterly period that ended on May 2, which was up by $5.36 million from the same fiscal quarter of last year. Among the other prominent stockholders of this company, one can find Pasco Alfaro and Richard Tumure’s Miura Global Management, which owned around 1.35 million shares worth $132.59 million at the end of March.
A new position consisting of 247,681 Five Below Inc. (NASDAQ:FIVE)’s shares valued at $9.79 million was added to the public equity portfolio of Rail-Splitter Capital Management during the second quarter. The specialty clothing retailer’s stock formed 2.82% of the fund’s total portfolio holdings . Five Below Inc. (NASDAQ:FIVE) offers a range of products, all priced at five dollars and below (hence the name) for teen and pre-teen customers. The $2.03 billion market cap company operates 366 locations across 21 states. Five Below Inc (NASDAQ:FIVE)’s stock jumped by 17% during the month of June in response to better-than-expected first quarter results. On June 3, the company announced that its first quarter sales jumped by 22% in comparison to the same quarter of last year. This was mainly due to new locations added to the store base of the company, as opposed to increased customer traffic at existing shops. The company reported earnings of $0.08 per share for the quarter ending on April 30, beating Wall Street estimates by $0.01. During the three month period from April to June, shares of the company rose by 8.9%. Other pleased shareholders of the company going into the second quarter were Ken Griffin’s Citadel Investment Group, with 1.02 million shares, and Michael R. Weisberg’s Crestwood Capital Management, which owned 936,000 shares.
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