Himanshu H. Shah founded Shah Capital Management in 2005 and is currently its President and Chief Investment Officer. The fund seeks to invest in significantly undervalued assets, turnaround situations when the market has misunderstood an industry or company’s plan, emerging companies that can exhibit strong growth, and disruptive business sectors.
Shah Capital, which has discretionary assets under management of $248.18 million as of the beginning of 2017, also engages in activist investing. It is currently trying to take UTStarcom Holdings Corp (NASDAQ:UTSI) private, having formed a consortium with Hong Liang Lu and Tengling Ti. At the end of March, the consortium made a non-binding offer to take UTStarcom Holdings Corp (NASDAQ:UTSI) private for $2.15 per share.
Shah Capital’s founder, President and CIO, Himanshu H. Shah has more than 25 years of experience investing in the U.S and international markets. Aside from Mr. Shah, the fund’s management team also includes Richard J. Callaghan, director of client relations and marketing, Ke Chen, director of Greater China Operation, director of research Don Espey, director of compliance and risk management Chaya Rao, director of private investments Shalin Y. Shah, and senior associate Marie Raitz.
According to its latest 13F filing, Shah Capital has a relatively small equity portfolio, with just 13 positions, although they are fairly diversified across sectors. The equity portfolio is worth $198.75 million as of the end of September. According to our calculations, Shah Capital’s stock picks posted a weighted average loss of 8.3% in the first six months of 2017. However, because the fund’s stock picks had a strong second-half of 2016 (they registered a weighted average return of nearly 30% in the third-quarter), its calculated return over the 12-month period ended June 30 stands at 19.64%.
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During the third-quarter, Shah Capital closed its positions in Seadrill Ltd (NYSE:SDRL), JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO), and GNC Holdings Inc (NYSE:GNC). What’s interesting is that Shah Capital initiated a single position during the third quarter – in Vitamin Shoppe Inc (NYSE:VSI), which is a retailer of vitamins, minerals, herbs, and supplements, and operates in the same industry as GNC Holdings Inc (NYSE:GNC), in which the fund unloaded its entire stake that had previously contained 1.1 million shares. At the end of September, Shah Capital held 1.29 million shares of Vitamin Shoppe Inc (NYSE:VSI) worth $6.91 million.
Both Vitamin Shoppe Inc (NYSE:VSI) and GNC Holdings (NYSE:GNC) have been struggling lately. Both stocks are down significantly over the last five years as the companies have failed to pick up their revenue growth. It seems like an industry-wide problem caused by consumers losing faith in vitamins and supplements. In 2015 and 2016, there were talks about the merger of both companies, which was viewed as a solution to both companies’ problems. One of the largest shareholders of GNC Holdings (NYSE:GNC) last year was activist fund Eminence Capital, led by Ricky Sandler, although it unloaded its entire stake during the first-quarter of 2016. Earlier this year, it was also reported that private equity firm KKR was interested in buying GNC Holdings (NYSE:GNC) and had been discussing it with Chinese pharmaceutical firm Sinopharm and investment company Fosun. It was even suggested that a merger between GNC Holdings (NYSE:GNC) and Vitamin Shoppe Inc (NYSE:VSI) under a private umbrella would make sense.
Shah Capital has not made any announcements regarding its plans in Vitamin Shoppe Inc (NYSE:VSI), but given the background, we can assume that it certainly has some plans to try and turn things around at the company.
On the next page, we are going to take a look at some of the largest holdings in Shah Capital Management’s equity portfolio.
In Avon Products, Inc. (NYSE:AVP), Shah Capital boosted its stake by 68% to 6.96 million shares worth $16.22 million during the third-quarter. In August, Avon Products, Inc. (NYSE:AVP) announced that its CEO Sheri McCoy will step down on March 31, 2018 and the company is currently in the process of identifying a replacement. Avon Products, Inc. (NYSE:AVP)’s stock is down by 52% since the beginning of the year, on the back of disappointing financial results the company posted for the past three quarters. In this way, the new CEO will have to change a lot of things in Avon Products, Inc. (NYSE:AVP)’s business model to turn things around, and as an activist investor, Shah might get involved to help identify the right person for the job.
Genworth Financial Inc (NYSE:GNW) represents Shah Capital’s second-largest holding in terms of value as of the end of September. The fund increased its position in the company by 4% during the third-quarter and disclosed a $23.38 million stake containing 6.07 million shares in its latest 13F. Genworth Financial Inc (NYSE:GNW) is currently in the process of being acquired by China Oceanwide, which offered to buy it for $2.7 billion last year. The deal was recently green-lighted by the U.S government and the buyer expects it to be completed by the end of 2017.
China Yuchai International Limited (NYSE:CYD) is by far Shah Capital’s biggest bet, as the fund’s position in the company amasses 37.60% of its 13F portfolio’s value. At the end of September, Shah Capital held 3.36 million shares worth $74.76 million in the holding company of Chinese diesel engine manufacturer Guangxi Yuchai Machinery Company Limited. China Yuchai International Limited (NYSE:CYD) represents one of Shah Capital’s longest activist campaigns. The fund has owned shares of the company since 2006, and in 2013 it urged the company to raise its stake in its engine manufacturing subsidiary to 100% from 76.4%.
The investor argued that the company’s stock could be worth $50 per share if China Yuchai International Limited (NYSE:CYD) bought the rest of the subsidiary’s stake and sold its remaining stakes in real estate company HL Global Enterprises and Thakral, among other things. Earlier this year, China Yuchai International Limited (NYSE:CYD) announced the acquisition of the remaining stake in engine maker Guangxi Yuchai Crankshaft Co., Ltd. In addition, HL Global Enterprises has been shedding assets this year.
Disclosure: None
