South Ferry Capital’s New Energy Picks For Q3

John Reilly founded South Ferry Capital Management, a New York-based long/short equity hedge fund, in 2010. The fund recently filed its 13F with the Securities and Exchange Commission (SEC) for the period of June 30. According to the filing, the fund’s public equity portfolio at the end of second quarter was worth $56.25 million, with 71% of it comprised of stocks from the energy sector and the majority of the remainder, 22%, allocated towards the financial sector. South Ferry disclosed in the filing that it sold its entire stake in eight stocks, made additional purchases in a lone stock, and initiated a stake in eight stocks during the June quarter. In this article we are going to discuss in detail South Ferry’s top three new picks from those eight newly-initiated positions, those being Cheniere Energy Partners LP Holdings LLC (NYSEMKT:CQH), PBF Energy Inc (NYSE:PBF), and W&T Offshore, Inc. (NYSE:WTI).

But before we proceed to dissect South Ferry’s top new picks, let’s first understand why we track the activity of hedge funds. From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years when compared to the S&P 500. But that doesn’t mean that we should completely neglect the hedge funds’ activities. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks beat the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 80 percentage points over the 34 month period beginning from September 2012, returning nearly 140% (see the details).

Cheniere Energy Partners LP Holdings LLC (NYSEMKT:CQH) was South Ferry’s top new pick during the second quarter. The fund initiated its stake by purchasing 135,000 shares of the company in the quarter, which were worth $3.16 million as of June 30. Cheniere Energy Partners LP Holdings LLC (NYSEMKT:CQH) is basically a holding company that owns units of Cheniere Energy Partners LP (NYSEMKT:CQP). At the end of December 2014, Cheniere Energy Partners LP Holdings LLC (NYSEMKT:CQH) held a 55.9% limited partner interest in Cheniere Energy Partners LP (NYSEMKT:CQP). Five of the six prominent analysts on the Street who cover the stock have a ‘Buy’ rating on it, with an average price target of $29, 26% above its current trading price of $23.08. Stuart J. Zimmer‘s Zimmer Partners and James Dinan’s York Capital Management were two of the largest shareholders of Cheniere Energy Partners LP Holdings LLC (NYSEMKT:CQH) at the end of the March quarter.