The finance sector has appreciated by almost 21% over the past year. While some of the big names operating in the sector reflect this uptrend, we decided to look at how the smaller companies are progressing in their relative anonymity. To this end we decided to look at the top equity holdings of two prominent finance-focused hedge funds, Tom Brown’s Second Curve Capital and William Black‘s Consector Capital. The list of their shares bets in the sector includes Bancorp Inc (NASDAQ:TBBK), NewStar Financial Inc (NASDAQ:NEWS), OFG Bancorp (NYSE:OFG), and First Bancorp (NYSE:FBP).
After working for many top firms including Smith Barney and veteran investor Julian Robertson’s Tiger Management, Tom Brown launched his own fund, Second Curve Capital in 2000. On the other hand the New York-based Consector Capital was founded in 2008 and uses a bottom-up approach to seek candidates for its absolute value approach, based on long-term capital appreciation. At the end of March, the market value of its public equity portfolio stood at $167.62 million as compared with $253.24 million for Second Curve.
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Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 85 percentage points since the end of August 2012. These stocks returned a cumulative of 145% vs. less than 60% for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).
Coming back to the less researched financial stocks, Second Curve held about 6.11% of Bancorp Inc (NASDAQ:TBBK)’s outstanding stock while Consector held another 3.53% at the end of the first quarter. The respective holdings of the two funds amounted to 2.30 million shares valued at $20.81 million and 1.33 million shares valued at $12.01 million. So far this year Bancorp Inc (NASDAQ:TBBK)’s stock has slid by about 3.6%. The $396 million financial holding company has delayed the filing of its first quarter financial results owing to what it deemed to be a re-examination of time sequencing of loan loss provisions for a discounted commercial lending operation. Just this month Piper Jaffrey initiated coverage on Bancorp Inc (NASDAQ:TBBK) with an ‘Underweight’ rating and a $16 price target, which provides a 52% upside from the current trading levels. After Second Curve, Robert I. Usdan and Wayne K. Goldstein’s Endicott Management is the largest stockholder of Bancorp Inc (NASDAQ:TBBK) within our database, holding about 1.66 million shares valued at $14.95 million.
