Seminole Management Loaded Up On These 5 Stocks in Q2

In late 2015, Seminole Management Company, a New York-based hedge fund firm co-founded by Michael Messner and Paul Shiverick in 1995, revealed its plans to return $400 million of outside investors’ money because it could not “maintain historical-like returns” in a changed trading environment without reducing assets under management. “In short, the game has changed” wrote Seminole’s co-founders in a letter to investors for the final quarter of 2015.

Seminole Management blamed the incursion of high-frequency trading and the rise of passive investments such as exchange-traded funds for its poor performance, saying that “there are fewer traders at the poker table to play against.” Although the firm’s decision to return 10% of assets under management back to outside investors does not seem to be a game-changer, the reduced pool of capital might have improved the investment firm’s capital allocation strategy. The New York-based hedge fund recently submitted its quarterly 13F filing for the June quarter, revealing an equity portfolio valued at $986.75 million, down from the $1.25 billion that its portfolio was worth at the end of the March quarter. With that in mind, the following article will lay out a list of five positions Seminole Management boosted massively during the second quarter of 2016, even as it trimmed its portfolio by over 20%.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

Real Life Design/Shutterstock.com

#5. Royal Dutch Shell plc (ADR) (NYSE:RDS.A)

 – Shares Owned by Seminole Management Company (as of June 30): 722,125

 – Value of Seminole Management Company’s Holding (as of June 30): $39.88 Million

Seminole Management Company owns 722,125 American Depositary Shares representing two Class A shares of Royal Dutch Shell plc (ADR) (NYSE:RDS.A) as of the end of the second quarter, 517,218 ADS’s more than it did at the end of the first quarter. The upped position was valued at $39.88 million on June 30 and accounted for 4.0% of the value of the hedge fund’s equity portfolio.

The largest oil company in Europe has seen its market value gain 17% since the beginning of 2016. In mid-February, Royal Dutch Shell completed the acquisition of BG Group plc for $54 billion, one of the largest takeovers in UK corporate history. The multi-billion-dollar deal was meant to increase the acquirer’s focus on liquefied natural gas (LNG) and deep-water exploration and production. The company’s second quarter oil and natural gas production increased by 28% year-over-year to 3.51 million barrels of oil equivalent per day, mainly due to additional volumes from the freshly-acquired BG Group. However, Royal Dutch Shell’s second quarter earnings adjusted for one-time items and inventory changes came in at $1.05 billion, well down from $3.76 billion recorded a year earlier. Ken Fisher’s Fisher Asset Management reported owning 119,090 ADS’s of Royal Dutch Shell plc (ADR) (NYSE:RDS.A) during the latest round of 13F filings.

#4. BP plc (ADR) (NYSE:BP)

 – Shares Owned by Seminole Management Company (as of June 30): 1.31 Million

 – Value of Seminole Management Company’s Holding (as of June 30): $46.53 Million

The New York-based investment firm upped its position in BP plc (ADR) (NYSE:BP) by 82% during the June quarter to 1.31 million ADS’s. The increased position was worth $46.53 million at the end of June. The embattled British oil company recorded profit adjusted for one-time items and inventory changes of $720 million for the second quarter,nearly half of the $1.3 billion in profit that it posted a year prior. The company blamed the weak financial performance on low oil and gas prices and “significantly lower” refining margins. However, BP believes the conclusion of its long-running Deepwater Horizon payments and woes related to the explosion of the firm’s rig in the Gulf of Mexico in April 2010 will enable the company to revitalize its growth in the years ahead. The total cost of the disaster in the Gulf of Mexico was $61.8 billion. BP’s ADS’s have appreciated by 10% thus far in 2016. Beech Hill Partners, run by Paul Cantor, acquired a new stake of 6,200 ADS’s of BP plc (ADR) (NYSE:BP) during the second quarter.

Let’s head to the second page of this article where we will reveal three other bullish moves completed by Seminole Management during the June quarter.

#3. Total SA (ADR) (NYSE:TOT)

 – Shares Owned by Seminole Management Company (as of June 30): 983,884

 – Value of Seminole Management Company’s Holding (as of June 30): $47.33 Million

The investment firm co-founded by Michael Messner and Paul Shiverick increased its exposure to Total SA (ADR) (NYSE:TOT) by 906,274 ADS’s during the April-to-June period, ending the second quarter with 983,884 ADS’s of Total SA. The international oil and gas company, which is active in new energy sources such as solar energy and biomass, has seen its market capitalization increase by 4% since the start of the year. In early May, the company agreed to acquire Saft Groupe SA, the French designer and manufacturer of batteries for industrial and defense applications, as part of its strategy to diversify away from the volatile crude oil industry. Total SA’s second quarter profit plunged by 30% year-over-year to $2.09 billion, while revenue fell by 17% to $37.22 billion. Steve Cohen’s Point72 Asset Management had 78,950 ADS’s of Total SA (ADR) (NYSE:TOT) among its holdings at the end of March.

#2. American Express Company (NYSE:AXP)

 – Shares Owned by Seminole Management Company (as of June 30): 979,995

 – Value of Seminole Management Company’s Holding (as of June 30): $59.54 Million

Seminole Management Company lifted its stake in American Express Company (NYSE:AXP) by 35% during the three-month period ended June 30, to 979,995 shares valued at just under $60 million. Just recently, analysts at BMO Capital Markets cut their price target on the credit card specialist to $73 from $76 and maintained their ‘Market Perform’ rating on it, citing increased investment spending in the second-half of 2016 on marketing and technology, which is anticipated to put downward pressure on the company’s bottom-line over the next few years. June 19 was the last day that Costco Wholesale Corporation (NASDAQ:COST) accepted American Express credit cards, as the warehouse club’s 16-year exclusive relationship with American Express came to an end, being replaced by a favorable deal with Visa Inc (NYSE:V) and Citigroup Inc. (NYSE:C). Roughly 10% of American Express cards were co-branded with Costco. American Express shares are down by 7% year-to-date. Ken Fisher’s Fisher Asset Management owns 11.73 million shares of American Express Company (NYSE:AXP) as of June 30.

#1. Vodafone Group Plc (ADR) (NASDAQ:VOD)

 – Shares Owned by Seminole Management Company (as of June 30): 2.41 Million

 – Value of Seminole Management Company’s Holding (as of June 30): $74.59 Million

Vodafone Group Plc (ADR) (NASDAQ:VOD) was the largest position in the New York-based asset manager’s pool of holdings at the end of June, accounting for 7.6% of the value of the fund’s equity portfolio. Seminole Management boosted its Vodafone position by 1.70 million ADS’s during the second quarter to 2.41 million ADS’s, with the upped position being valued at $74.59 million on June 30.

In February, the British telecommunications giant and cable giant Liberty Global plc (NASDAQ:LBTYA) agreed to combine their Dutch businesses to better compete with Dutch market leader Royal KPN NV. Just recently, the two companies offered concessions in an attempt to secure EU antitrust approval for that previously-announced plan to merge their Dutch telecom operations. Vodafone’s organic service revenue for the quarter that ended June 30 grew by 2.2% year-over-year to $13.6 billion, reflecting excellent performance in South Africa, Turkey, and Egypt, and ongoing recovery in India. David Einhorn’s Greenlight Capital had 1.02 million ADS’s of Vodafone Group Plc (ADR) (NASDAQ:VOD) among its holdings at the end of the first quarter.

Disclosure: None