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.
Both Second Curve and Consector reduced their holdings in NewStar Financial Inc (NASDAQ:NEWS) during the first quarter, the former by 27% to 2.11 million shares valued at $24.74 million and the latter by 17% to 789,800 shares valued at $9.26 million. Shares of the $513 million commercial finance company have lost 12.8% of their value year-to-date. Among the funds that we track, D.T. Ignacio Jayanti‘s Corsair Capital LLC is the largest shareholder of NewStar Financial Inc (NASDAQ:NEWS), with some 9.54 million shares valued at $111.89 million.
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Next in line is OFG Bancorp (NYSE:OFG) and the two funds have competing outlooks towards the company’s prospects given their activity during the first three months. While Second Curve increased its stake by 47% to 724,600 shares valued at $11.83 million in the Puerto Rico-based financial company, Consector slashed its holding by 33% to 515,600 shares valued at $8.41 million. So far this year OFG Bancorp (NYSE:OFG) has depreciated by more than 15%. Porter Collins, Daniel Moses, and Vincent Daniel’s Seawolf Capital is the largest shareholder of OFG Bancorp (NYSE:OFG) among those that we track, holding about 886,400 shares valued at $14.47 million.
Both funds slashed their stakes in First Bancorp (NYSE:FBP) during the first quarter despite the stock appreciating by almost 10% year-to-date. Second Curve disposed of 653,000 shares to drop its holding to 859,500 shares valued at $5.33 million, while Consector Capital slashed its holding by 15% to 2.52 million shares valued at 15.62 million. Although First Bancorp (NYSE:FBP) managed to beat the bottom line estimates for its first quarter financial results, revenues came in lighter than expected. Howard Marks’ Oaktree Capital Management is the largest stockholder of First Bancorp (NYSE:FBP) within our database, holding some 41.84 million shares valued at $259.43 million.
Disclosure: None
