Professor Roger Ibbotson‘s Zebra Capital Management recently submitted its filing with the SEC for the period ending March 31. The firm’s filing showed that it had a public equity portfolio value of $194.65 million, a slight uptick from the end of 2014, while it controls about $400 million worth of assets under management. It was founded in 2001 by Roger Ibbotson, who is also the majority holder of the firm. Zebra Capital primarily centers its activities on equity-focused investment strategies for the best returns. Zebra Capital Management invests in different industries, with its main sectors being services, finance, technology, basic materials, consumer goods, and industrial goods. Having been keenly following the fund’s activities, Insider Monkey picked its top small-cap picks for the quarter (which also happen to be the fund’s top picks overall) and looked into their performance. These small-cap stocks are West Corp (NASDAQ:WSTC), Credit Acceptance Corp. (NASDAQ:CACC), and Syntel, Inc. (NASDAQ:SYNT).
Let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith in large-cap stocks. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 84 percentage points, returning over 144% (read the details here). Hence a retail investor needs to isolate himself from the herd and take advantage of the best growth opportunities in the market by concentrating on small-cap stocks.
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At the end of the first quarter, Zebra Capital Management held a total of 103,018 shares of West Corp (NASDAQ:WSTC) valued at $3.48 million, having raised its stake in the company by more than 400% during the quarter. The company reported its first quarter results on May 5, posting $0.78 in earnings per share, beating analysts’ consensus estimate of $0.74. West Corp (NASDAQ:WSTC) had revenue of $565.50 million, slightly higher than the $565.00 predicted by analysts. The company posted $0.70 in earnings per share for the same period last year while its revenue for the first quarter of 2015 was by 5.7% year-over-year. Despite the strong results, the stock was recently downgraded by Zacks to a “Hold” rating from “Buy”. The company recently announced the acquisition of Intrafinity, Inc., a company doing business as SharpSchool, at an approximate price of $19 million. SharpSchool provides content management systems and software-as-a-service solutions to the education market. 26 hedge funds in our database had positions in West Corp (NASDAQ:WSTC) on March 31, with an aggregate of $201.57 million invested in the company. Bluemar Capital Management, Alyeska Investment Group, and Robert Gillam‘s Mckinley Capital Management are just a few of these funds.
Zebra Capital Management held a total of 17,511 shares of Credit Acceptance Corp. (NASDAQ:CACC) valued at $3.42 million at the end of the first quarter. This represented a reduction in the fund’s stake in the company, with its share count down from 26,357, though the value of the position declined only slightly, to $3.60 million. The latter is due to the strong performance of the stock during the first quarter, as it returned a hefty 42.95%, which may have prompted Ibbotson to take some profit from the holding. The company reported robust earnings per share of $3.44 on revenue of $194.20 million during the first quarter. Analysts expect Credit Acceptance Corp. (NASDAQ:CACC) to perform very well in the next three quarters of the year as well, giving the stock a consensus estimate of $14.25 in earnings per share for fiscal year 2015, while analysts at JMP Securities, Jefferies Group, and Compass Point all raised their price targets on the stock recently. The financial services company was held in the equity portfolios of 20 hedge funds in our database, with their investment amounting to $385.48 million. A few of those funds are Bloombergsen, Goodnow Investment Group, and Quincy Lee‘s Teton Capital.
Zebra Capital Management held a total of 42,239 shares of Syntel, Inc. (NASDAQ:SYNT) worth $2.19 million at the end of March. The technology company recently reported its results for the first quarter, posting $0.48 in earnings per share on revenue of $220.60 million, which was 6% lower than its performance in the last quarter of 2014, but up 1% compared to the same quarter of last year. The company’s earnings per share fell well short of Thomson Reuters’ forecast of $0.67. Syntel, Inc. (NASDAQ:SYNT) was expected to post $2.74 in earnings per share for fiscal year 2015, which may now be in jeopardy given its underwhelming first quarter results. The stock has been given a one-year consensus price target of $51.43, suggesting limited upside of about 5.5% over the next year. In addition, Zacks recently downgraded Syntel, Inc. (NASDAQ:SYNT) to “Neutral” from “Outperform”, though its price target of $53.30 is slightly higher than the consensus. Other funds that have invested in the company besides Zebra Capital Management include Martin Whitman’s Third Avenue Management and Jim Simons‘ Renaissance Technologies, which increased its stake in the company during the first quarter.
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