Bruce Silver‘s Silver Capital Management recently filed its 13F form with the SEC for the first quarter. Let us have a look at how the fund has geared its equity portfolio for the second quarter. Assets under the fund’s management are valued at about $180 million, while the market value of its equity portfolio at the end of the first quarter stood at just $17.08 million. The top five holdings were AdCare Health Systems, Inc. (NYSEMKT:ADK), NorthStar Asset Management Group Inc (NYSE:NSAM), Webster Financial Corporation (NYSE:WBS), Liberty Global plc – Class A Ordinary Shares (NASDAQ:LBTYA), and E*TRADE Financial Corp (NASDAQ:ETFC).
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The investment philosophy at Silver Capital Management is to actively manage portfolios to take advantage of the economic and market cycles. This is also shown by the fund’s relatively high turnover ratio of 71.88% for the March quarter. The prospective investments are evaluated on the basis of their historical and current valuation metrics such as earnings multiples and return on equity etc. and compared with other companies operating in the same sector.
We follow the activity of hedge funds, based on the research conducted by Insider Monkey’s founder Dr. Ian Dogan’s research. The backtests involving hedge funds’ equity portfolios between 1999 and 2012 revealed that 50 most popular stocks among hedge funds underperformed the market by 7 basis points per month. In the last two years, equity hedge funds had average returns of 11.1% and 1.4% respectively, which shows that an investor was better off by allocating his money in an index fund such as the S&P 500 ETF (SPY), which returned 32.3% and 13.5% during the same period. However, we consider that we can combine the pricing inefficiencies among small-cap picks with hedge fund expertise and obtain significant results. In forward tests since 2012, this strategy, that involves imitating most popular small-cap picks among hedge funds, managed to provide gains of 132%, beating the broader market by some 80 percentage points (see details here).
AdCare Health Systems, Inc. (NYSEMKT:ADK) moved to the top spot as Silver Capital’s largest equity holding and represents 9.63% of the fund’s portfolio value. The stake remained unchanged over the quarter at about 375,600 shares valued at $1.65 million. AdCare Health Systems, Inc. (NYSEMKT:ADK) is undergoing a transition which involves a significant change of the company’s business model from an owner and operator of healthcare facilities to a property holding and leasing company. The plan was put into action in the fourth quarter when the company had just three sub-leased properties. By April AdCare Health Systems, Inc. (NYSEMKT:ADK) had entered into leasing agreements for 35 of their 40 healthcare facilities. Paul Orlin and Alex Porter’s Amici Capital and Jim Simons‘ Renaissance Technologies are two other stockholders of AdCare Health Systems, Inc. (NYSEMKT:ADK).
After a 32% reduction in its stake over the quarter, NorthStar Asset Management Group Inc (NYSE:NSAM) occupied the second spot in Silver Capital’s portfolio with some 52,700 shares valued at $1.23 million. The $4.25 billion REIT represents Silver Capital’s largest bet in the finance sector, which in aggregate amassed 20% of the fund’s equity holdings, the largest contribution among sectors. NorthStar Asset Management Group Inc (NYSE:NSAM) sports a dividend yield of 1.86%, as compared to the industry average of 2.29%. Among the billionaires that we track, six disclosed long positions in the company at the end of the fourth quarter. Among them was Ken Griffin, whose fund Citadel Investment Group held about 5.35 million shares of NorthStar Asset Management Group Inc (NYSE:NSAM).
Another one of Silver Capital’s holdings in the financial sector is its newly initiated stock in Webster Financial Corporation (NYSE:WBS) with some 30,100 shares valued at $1.12 million. Despite missing estimates for its first quarter financial results, the stock of the $3.26 billion full service commercial bank has appreciated by 8.76% year to date. Webster Financial Corporation (NYSE:WBS)’s EPS for the stood at $0.52, which was $0.02 lower than anticipated and revenues of $159.8 million were $3.05 million lighter than expected. Ken Fisher’s Fisher Asset Management and Richard S. Pzena’s Pzena Investment Management hold Webster Financial Corporation (NYSE:WBS) in their portfolios.
Silver significantly increased his fund’s exposure to Liberty Global plc – Class A Ordinary Shares (NASDAQ:LBTYA) by adding 10,000 shares during the first quarter. The current stake amounts to 18,500 shares valued at $952,000. The international cable company’s trailing twelve month gross margin is 62.68% as compared to the industry’s average of 57.38%. Liberty Global plc – Class A Ordinary Shares (NASDAQ:LBTYA) is expanding its operations in Europe and recently made an acquisition of Royal KPN’s mobile-phone business, Base, through its Belgian subsidiary, Telenet, to the tune of $1.43 billion. Boykin Curry‘s Eagle Capital Management is the largest shareholder of Liberty Global plc – Class A Ordinary Shares (NASDAQ:LBTYA), according to our database.
After a 27% reduction in its stake in E*TRADE Financial Corp (NASDAQ:ETFC), Silver Capital now holds 30,700 shares valued at $877,000 of the financial services company. John Griffin’s Blue Ridge Capital and Leon Cooperman’s Omega Advisors are two other prominent stockholders of E*TRADE Financial Corp (NASDAQ:ETFC). In a bid to increase the accessibility of its customers to the equity markets, the company recently launched an Apple Watch app, which facilitates tracking by providing snapshots of market indices along with other easy-to-glance features.
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