After a Big Reshuffle, a Look at Hayground Cove Capital's New Positions

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 |  Includes: AET, COST, DELL, EA, EIX, FDX, HOG, INHZF, LMT, NOC, PFE, SGMS, UNH, USO, WM
by: Insider Monkey

Hayground Cove Capital Management is a New-York based investment management firm that was founded by Mr. Jason Ader in 2003 with seed capital from Bear Stearns. Mr. Ader currently serves as the CEO and portfolio manager of Hayground Cove Institutional Partners. He started his career as an analyst at Baron Capital, focusing on the casino industry. He then moved on to Smith Barney doing the same thing. After Smith Barney, Ader spent eight years at Bear Stearns covering gaming, lodging and leisure industries. Mr. Ader has a B.A.degree in Economics from New York University and has an M.B.A. in Finance from Stern School of Business at NYU.

According to the latest 13F submission made to the SEC, Hayground Cove Capital owns a total of four holdings valued at $17 million, as of March 31st, 2011. In the previous quarter (Q42010), the fund had 14 holdings that were valued at $66 million on December 31st. A summary table of Hayground Cove’s activities is below:

CompanyName

Ticker

Value

Activity

Return

AETNA INC NEW

AET

Sold Out

14.1%

COSTCO WHOLESALE CORP

COST

Sold Out

6.3%

DELL INC

DELL

Sold Out

9.6%

EDISON INTERNATIONAL

EIX

Sold Out

5.2%

ELECTRONIC ARTS INC

ERTS

Sold Out

21.9%

FEDEX CORP

FDX

Sold Out

-6.2%

HARLEY DAVIDSON INC

HOG

Sold Out

-13.0%

LOCKHEED MARTIN CORP

LMT

Sold Out

-2.8%

NORTHROP GRUMMAN CORP

NOC

Sold Out

1.5%

PFIZER INC

PFE

Sold Out

3.1%

UNITEDHEALTH GROUP INC

UNH

Sold Out

6.9%

WASTE MANAGEMENT INC DEL

WM

Sold Out

1.5%

WESTERN LIBERTY BANCORP

WLBC

Sold Out

-14.5%

INDIA HOSPITALITY CORP

OTC:INHZF

4874

1.6%

#N/A

SCIENTIFIC GAMES CORP

SGMS

3959

New

2.7%

UNITED STATES OIL FUND L P

USO

6528

New

-8.5%

WESTERN LIBERTY BAN. NEW

WLBC

1601

New

-14.5%

Click to enlarge

During the first quarter of 2011, Hayground Cove sold 13 out of the 14 holdings it held in the last quarter of 2010. The only stock it kept on its portfolio since the previous quarter and increased its shares in was India Hospitality Corp. Usually hedge funds don’t have such a huge turnover in their portfolios. Jason Ader stepped down in 2007 and Mark Soloway and Evan Wax took over. Unfortunately, investors didn’t like this. The fund suffered from redemptions and investment losses. They lost 25% in 2008, gained 30% in 2009, and lost 10% in 2010. Ader took over the fund again at the beginning of this year and returned around 12% during the first two months. He also sold most of Soloway and Wax’s stock picks. That’s why the portfolio has such a huge turnover. Incidentally, the 13 stocks Ader sold returned 2.6% since the end of March, outperforming the market by a large margin.

In some of the holdings Hayground Cove sold during the first quarter, other funds increased their bets. Bill Miller’s Legg Mason Capital Management, for example, enhanced its position in Aetna Inc. (NYSE:AET) by 7.4% during the first quarter of 2011. Larry Robbins’ Glenview Capital was another fund that was bullish for Aetna in the first quarter and increased its position by 2.6%. The stock generated a return of a little over 14% since the end of March 2011.

Electronic Arts Inc. (ERTS) was another stock which many hedge funds were bullish about in the first quarter of 2011. Eric Mindich’s Eton Park Capital, David Shaw’s D.E. Shaw, and Jim Simons’ Renaissance Technologies were all bullish on the stock in the first quarter and increased their holdings of Electronic Arts. The stock has generated almost 22% in returns since the end of March 2011.

Hayground Cove opened three new long positions in the first quarter of 2011 that were valued approximately $12 million, collectively, on March 31st. Its heaviest bet in these new positions was United States Oil Fund LP (NYSEARCA:USO), an exchange traded security, where it saw a disappointing performance since the end of March. The security has lost almost 8.5% in value since then.

Another holding Hayground was bullish on was Scientific Games Corp (NASDAQ:SGMS), where it saw a mediocre return of almost 3% since March 31st. The stock was recently trading at $8.67 a share. We've seen some slight position increases in Scientific Games by Debra Fine’s Fine Capital Partners, Coven Group’s Ramius, and Israel Englander’s Millennium Management during the first quarter of 2011.

The biggest loss Hayground incurred since March 31st was in Western Liberty Bancorp (WLBC), where the stock lost almost 15% in value. The stock was recently trading at $3.18 a share. We see no major increased activity in Western Liberty by any fund during the first quarter of 2011.

Overall, Hayground missed out on some high returns by selling out all its holdings. The new positions it opened during the first quarter were disappointing in returns. Ader underperformed the market by around 3 percentage points since the end of first quarter, but his performance for the year is above market returns. We believe Ader’s stock picks will beat the market in the long term.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.