Richard L. Haydon’s Tipp Hill Capital Management LLC is a New York-based hedge fund which was founded in July, 2009. Formerly known as Yield Capital Partners (Y/Cap Management), under which its filings are still listed, the fund has a two-pronged investment strategy: first, a value-oriented long/short approach and second, an approach targeting investments driven by catalysts such as M&As, spin-offs, or managerial changes. The former strategy focuses on companies with strong free cash flow generation, among other factors, and has an investment horizon of one-to-three years and a target return of 50% within two years, while investments under the latter approach last less than a year, with an annual return target of 20-30%. At the end of the second quarter of 2015, the fund was invested 28% in the finance sector, 27% in consumer discretionary, 17% in transport, 13% in information technology, and 10% in energy. The market value of the fund’s public equity portfolio stood at $118.31 million at the end of June, representing a decrease of $7.88 million. In this article we’ll take a look at the top picks of the fund heading into the third quarter, which are Delta Air Lines, Inc. (NYSE:DAL), Citigroup Inc (NYSE:C), and ON Semiconductor Corp (NASDAQ:ON).
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It is well-known that hedge funds have under-performed the S&P 500 based on net returns over the past several years. But we are missing something very important here. Hedge funds generally pull in strong returns from their top small-cap stocks and invest a lot of their resources into analyzing these stocks. They simply don’t take large enough positions in them relative to their portfolios to generate strong overall returns because their large-cap picks underperform the market. We share the top 15 small-cap stocks favored by the best hedge fund managers every quarter and this strategy has managed to outperform the S&P 500 every year since it was launched in August 2012, returning over 139% and beating the market by more than 80 percentage points (read the details). Because of this, we know that collective hedge fund sentiment is extremely telling and valuable.
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Tipp Hill Capital Management held 220,000 shares of Delta Air Lines, Inc. (NYSE:DAL) with a value of $9.05 million at the end of second quarter. This was equivalent to 7.64% of its total portfolio and it moved to the top of said portfolio in terms of long positions after the holding was increased by 10% during the second quarter. Delta has two business segments, the Airline segment and the Refinery segment. The company’s Airline segment provides scheduled air transportation for passengers and cargo and other ancillary airline services, including maintenance and repair services throughout the United States and around the world. Its Refinery segment provides jet fuel to the airline segment from its own production, and through jet fuel obtained through agreements with third parties. Delta Air Lines, Inc. (NYSE:DAL), which has a market cap of $35.08 billion, reported solid second quarter earnings, with adjusted EPS up by more than 20% year-over-year despite a decline in unit revenue and a $600 million fuel hedging loss. In the second quarter, the company’s net profit margin of 13.86% was above that of the industry average. Its investment of $446 million in Brazil’s Gol Linhas Aereas Inteligentes S.A. received approval from Brazilian regulators on July 23. Another shareholder of the stock going into the second quarter was Lansdowne Partners, managed by Alex Snow, which had 24.76 million shares valued at $1.11 billion at the end of the first quarter.
Tipp Hill Capital Management opened a new position in Citigroup Inc (NYSE:C) during the second quarter. The fund held a total of 161,500 shares of the company, with a market value of $8.92 million at the end of the period. This was equivalent to 7.54% of its total portfolio holdings and pushed the position to the second-most valuable long position in the fund’s portfolio. The company is a financial services holding company, whose businesses provide consumers, corporations, governments, and institutions with financial products and services. It operates through two primary business segments: Citicorp and Citi Holdings. The market cap of the company is $178.10 billion. In its second quarter earning report, Citigroup Inc. (NYSE:C) announced earnings per share of $1.53, surpassing analysts’ expectations, with profits increasing by 18% year-over-year in the second quarter. The equity gains of the stock during the second quarter were 6.97%. Recently, the company had a multi-billion dollar settlement with the Consumer Financial Protection Bureau, declaring that it will refund $700 million to consumers as well as pay $70 million in fines for illegal and deceptive credit card practices. Going into the second quarter of 2015, a few other hedge funds with prominent positions were Ken Fisher’s Fisher Asset Management with 11.86 million shares and Edgar Wachenheim’s Eagle Capital Management with 5.20 million shares.
Tipp Hill Capital Management had 700,000 shares of ON Semiconductor Corp (NASDAQ:ON) with a value of $8.18 million at the end of the second quarter. It formed 6.92% of the total portfolio holdings of the fund. The US-based company offers a portfolio of analog, digital, and mixed signal ICs, image sensors, and custom devices for customers to solve their design challenges in electronic systems and products. The company operates through four segments: including the Application Products Group, which designs and develops analog, mixed-signal and logic ASIC and ASSP solutions for end-users. In June, the $4.43 billion market cap company agreed to buy Aptina Imaging for about $400 million in cash, a deal that will expand its presence in the automotive and industrial semiconductor markets. The deal, slated to close in the third quarter, is expected to immediately add to ON Semiconductor Corp (NASDAQ:ON)’s earnings. The news sent the company’s shares up by 2% on the same day it was announced. Another shareholder of the stock as of June 30 is Skylands Capital, managed by Charles Paquelet, which held 1.02 million shares of the company.
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