I love to look through 13F filings of hedge funds that place all of their holdings in a few stocks. That is true belief that the best ideas are in a concentrated portfolio.
We have examined other such managers before - Saddle Rock being one of them. Its top holdings currently are American Eagle (NYSE:AEO), Abercrombie (NYSE:ANF), and Tween Brands (TWB) (and calls in American Express (NYSE:AXP) and Ameriprise (NYSE:AMP) - favorites of brother Joel Greenblatt.
How about other managers that are highly concentrated? (Please comment other names that run concentrated portfolios.) From a good Marketwatch column by Alstair Barr:
MLF Partners LP, an activist hedge fund run by Matt Feshbach, returned 29% after fees in 2006, leaving it up more than 360% since he started it in late 2001, according to a letter he sent to investors last month. By contrast, the benchmark Standard & Poor's 500 index rose less than 16% last year and is up 36% since Feshbach started MLF.
Feshbach eschews the more aggressive "poison-pen" approach used by hedge fund managers like Robert Chapman and Dan Loeb. Instead, he usually invests in companies that are suffering from disappointing news or low Wall Street expectations but have executives and directors that think like owners and whose interests are aligned with shareholders.
"True alignment between management, the Board and a company's key constituents is an irrepressible force in building long-term shareholder value," Feshbach wrote in the letter. "While one can sometimes generate high returns speculating in companies with 'bad management' and a history of destroying value it seems obvious that it's a lot easier to invest in the opposite."
That's a big change from his former incarnation.
By 1990, the Feshbach brothers - Matt, Kurt and Joe -- had built a $1 billion hedge fund business by aggressively shorting stocks. Their flamboyant style was typified by jackets they used to wear bearing the slogan "stock busters." At Christmas they often mailed out mugs with the same motto. (Shorting involves borrowing shares and then selling them in the hope of buying them back later at a lower price.) As the economy pulled out of recession in the early '90s, pure short-selling strategies became more difficult and the Feshbach brothers closed down after losses in 1991.
Feshbach currently only owns four stocks in his portfolio as of the recent 13F filing from June 30th (he held them at the beginning of the year). If he still holds them, he must be having a tough time this year. The stocks are down YTD 2007:
AMIE -43% (~40% of portfolio)
LZB -17% (~30% of portfolio)
DLIA -43% (~20% of portfolio)
SIR -65% (~10% of portfolio)
OUCH! Any MLF shareholders out there? If you are a believer in his ability to pick stocks, it certainly seems like a great time to pick up his portfolio on the cheap. . .
Here is another good interview with Feshbach from Weeden.