In 2005, David Brown decided it was time to launch his own long/short-focused asset management firm, and he did it with $4 million of initial capital, naming the fund Hawk Ridge Capital Management. Over the years the fund progressed, reaching $345.99 million in assets under management (at the end of 2016). The fund is headquartered in Los Angeles, providing additional office in New York City. Its Portfolio Manager is its founder David Brown, who cut his teeth at the investment banking division at Donaldson Lufkin & Jenrette. It is interesting to note that David Browns’ interest in the stock market developed very early, while he was still a high school student. That is when he bought his first shares of American Express Company (NYSE:AXP), which turned out to be a seriously profitable investment (estimated gain of 900% since then). David Brown was also employed at Brentwood Associates as a private equity specialist. He earned a B.A. in Economics (summa cum laude) from Claremont McKenna College.
Hawk Ridge Capital Management utilizes long/short investment strategies, which means it looks for undervalued companies in which it acquires long positions, and it also searches for overpriced companies for shorting. It conducts professional analyses of potential investment opportunities, trying to identify good and poor businesses. It goes long the good, but undervalued companies, aiming to profit when the market realizes their potential and their prices jump, and short the weak, but overvalued businesses trying to benefit from declining prices. The fund usually invests in companies from North America. Let’s take a look at Hawk Ridge Capital Management’s performance figures in order to see how did this strategy work out.
Starting with the oldest return figure we’ve managed to track – 36.06%, which the fund delivered in 2013, followed by 2014 and its return of 11.10%, and 2015 and a return of 7.67%. In the following year, 2016, Hawk Ridge Capital Management generated a return of 17.91%, and 8.03% in 2017. Even last year’s tough market conditions didn’t manage to affect the fund’s positive track record, with it delivering 12.69% through October. Its total return amounted to 376.73%, for a compound annual return of 12.77%. Its worst drawdown was 30.46.
Insider Monkey’s mission is to identify promising (and also terrible) hedge fund stock pitches and share them with our subscribers. We launched a long activist investing strategy in our monthly newsletter 2 years ago. This strategy’s stock picks returned 61% in 2 short years, vs. a gain of 21% for the S&P 500 Index ETF (SPY). Last October we shared one of our stock picks, Ascendis Pharmaceuticals (ASND), in a free sample issue of our monthly newsletter (you can still download it free of charge). The stock doubled in less than 5 months.
We have also been very successful at identifying stocks that will decline even in a bull market. We launched our short strategy a little more than 2 years ago and share our short stock picks in our quarterly newsletter. This strategy’s picks lost 30.9% since then, vs. a gain of 24% for the S&P 500 Index. This means our short strategy actually outperformed the market by nearly 55 percentage points (let us know if you don’t understand how the outperformance for a short strategy is calculated).
Recently our monthly newsletter identified another undervalued stock that is expected to increase its earnings by more than 10% annually and trades at only 10 times its 2019 earnings. We expect this stock to return 60% in the next 12-24 months. We take a closer look at hedge funds like Hawk Ridge Capital Management in order to identify their best and worst ideas.
At the end of the first quarter of 2019, Hawk Ridge Capital Management’s equity portfolio was valued $474.49 million, up from $321.16 million it was worth at the end of the last quarter of 2018. After adding 13 new positions and dumping nine, the fund held 42 long positions in total. The fund’s top picks weren’t those approved by the general hedge fund sentiment, as its portfolio didn’t have a single stock from those 30 Most Popular Stocks Among Hedge Funds in Q1 of 2019. Nevertheless, there were still many interesting positions the fund held and portfolio changes it made in Q1.
First, there were nine dumped positions out of which the biggest five were in On Deck Capital, Inc. (NYSE:ONDK), The Michaels Companies, Inc. (NASDAQ:MIK), TrueCar, Inc. (NASDAQ:TRUE), Golden Entertainment, Inc. (NASDAQ:GDEN), and Cray Inc. (NASDAQ:CRAY). To specify, Hawk Ridge Capital Management sold out 1.8 million On Deck Capital’s shares with a value of $10.63 million, 421,600 The Michaels Companies’ shares, worth $5.71 million, and 605,931 TrueCar’s shares, with a value of $5.49 million. It also said goodbye to 236,049 Golden Entertainment’s shares with a value of $3.78 million, and to 161,700 Cray’s shares that were worth $3.49 million.
Click here to read the rest of this article, where we present Hawk Ridge Capital Management’s top Q1 2019 positions and additions.
This article was originally published at Insider Monkey.