Over the past days hedge funds have been filing their form 13-F, which is a quarterly report of equity holdings by filed institutional investment managers with at least $100 million in equity assets under management, as required by the United States Securities and Exchange Commission (SEC). In this article, let´s concentrate in one particular hedge fund and try to see the principal holdings in its portfolio. I will look into Shah Capital Management LLC.
Recently the fund reported its equity portfolio, as at the end of September. The total value of the portfolio amounted to $106.7million, up from $134.9million disclosed at the end of the previous quarter. Consequently, the fund's total return was negative 28.2 million in the last quarter. The filing revealed that at the end of September, the fund added no new positions to its equity portfolio and sold out 2 positions. The top ten portfolio holdings as of the end of the quarter represented 97.84%. The largest changes from previous 13-F´s fillings are in the tech and industrial sectors.
In this article, we have selected three companies, in which the fund holds the largest stakes, in terms of market value.
The first on the list is China Yuchai International Limited (CYD, Financial), in which the fund disclosed a $44.86 million stake with over 2.42 million shares.
Recently, the company announced that its main operating subsidiary, Guangxi Yuchai Machinery Company Limited (GYMCL, Financial), has completed its acquisition of Yuchai Remanufacturing Services (Suzhou) Co., Ltd. (YRC, Financial). With the deal the firm seeks for developed high-quality standards and good management processes. Further, the subsidiary has divested its total interest in Jining Yuchai Engine Company Limited (Jining Yuchai).
During the past fiscal year, the company increased its bottom line. It earned $3.10 versus $2.44 in the prior year. For the next year, Wall Street is expecting a contraction of 12.3% in earnings ($2.72 versus $3.10).
Other hedge fund gurus have also been active in the company. Jean-Marie Eveillard (Trades, Portfolio) has taken long positions too.
UTStarcom Holdings Corp. (UTSI, Financial) comes in next, the fund owning over 10.71 millionshares, worth $32.67million.
In the past, the firm sold over $250 million of packet optical transport products that form the backbone of telecommunications network infrastructure. Although we expected the company to improve in several on its businesses, profitability doesn´t improve.
The gross profit margin is considered rather low, currently at 22.11%. Net profit margin is negative and this is not attractive at all. The price level is not very different from its closing price of one year earlier, due to its weak earnings growth. The net income has decreased by 118.1% when compared to the same quarter one year ago, falling from -$2.10 million to -$4.59 million. Finally, the firm has increased its ROE when compared to the previous quarter, despite is still negative.
Other hedge fund gurus have also been active in the company. Chuck Royce (Trades, Portfolio) and Jim Simons (Trades, Portfolio) have taken long positions in the second quarter of 2014.
In Trina Solar Ltd (TSL, Financial) the fund disclosed ownership of over 487,800 shares, worth $5.888 million. This China-based company is an integrated manufacturer of solar-powered products used to produce electricity from sunlight. The firm`s growth has benefitted by government subsidies, in countries such as Germany, Spain, Italy, Japan, U.S. and China where governments have provided subsidies to reduce dependency on non-renewable sources of energy.
During the past fiscal year, the company continued to lose money by earning -$1.02 versus -$3.76 in the prior year. This year, Wall Street expects an improvement in earnings ($0.95 versus -$1.02). Despite this, it reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago.
Other hedge fund gurus have also been active in the company. Louis Moore Bacon (Trades, Portfolio) and Howard Marks (Trades, Portfolio) have taken long positions.
Final Comment
Probably the worst mistake a new investor can make is to not properly diversify a portfolio. But we already saw that this hedge fund has more than 70% of its portfolio in three stocks. The stock portion of the hedge fund portfolio won't be diversified, because it invests in a few individual stocks, that actually we saw that are not performing the best way.
In a previous article we said that investors need at least twenty or thirty carefully selected individual stocks to be truly diversified. Diversify your portfolio asset allocation by spreading money amongst a variety of stocks is what I recommend, because it’s simple, diversification can work and can prevent your entire portfolio from losing value.
Disclosure: Omar Venerio holds no position in any stocks or funds mentioned.
