Back in 2010, Nathaniel August, an activist investor, decided it was time to launch his own hedge fund, and he named it Mangrove Partners after a tree species that has the ability to survive extreme weather conditions such as storms and hurricanes. The idea behind this name was to symbolically present hedge fund that is able to perform well even in harsh market environments. It turned out the name was fitting as the hedge fund that was launched with only $12 million in AUM became one of the best-performing in the previous years. In seven years since inception, its AUM grew to $780.3 million.
Nathaniel August had previously honed his investment acumen at White Eagle Partners where he was a director. He also worked at K Capital Partners, as an Investment Analyst, at Brahman Capital Partners as a Senior Analyst, and at Goldman Sachs’ Principal Investment Area as an Analyst. Interestingly, he had the opportunity to learn about investing when he was very young, as both his parents were involved in the industry. He graduated from Brown University with a B.A.
Mangrove Partners utilizes four core strategies: long/short, stressed and distressed, capital structure arbitrage, and liquidations and arbitrage. From its founding in 2013, the fund brought back an outstanding return of 44% annually. It returned 4.25% in 2013, strong 26.99% in 2014, pushing its average annual return to 20.6% between 2012 and 2014. 2015 was not so good, as its return dropped to a negative 1.88%.
Nevertheless, it came back on its feet the next year, delivering an eye-popping 50.58%, making an average annual return between 2014 and 2016 of 23.3%, which secured it the second place among Barron’s top 100 hedge funds in 2017. That year it brought back 8.71%, averaging 17.2% between 2015 and 2017, being 16th among the top 100 hedge funds last year. The extremely difficult market condition in 2018, had an impact on the fund’s performance, as it had delivered -0.20% through September 2018.
Insider Monkey’s mission is to identify promising (and also terrible) hedge fund stock pitches and share them with our subscribers. Our long strategy is based on the consensus picks of the 100 best performing hedge funds. This strategy was launched 5 years ago and generated a cumulative return of 115%. You can think of it as a mutual fund that returned 16.2% annually over the last 5 years, vs. 11.1% annual gain for the S&P 500 ETF (SPY). Basically we outperform the S&P 500 Index by 5 percentage points annually by identifying the top stock picks of the best hedge fund managers (see the details here). By tracking the best performing hedge funds we have been able to identify extremely attractive priced stocks (see our latest idea, a growth stock trading at less than 3 times its core earnings).
Our short strategy is based on shorting hedge fund hotels that are likely to experience large hedge fund sales during market weaknesses. We launched this strategy in February 2017. It’s been almost 2.5 years and the stock picks of this strategy lost a cumulative 24.7% vs. a cumulative gain of 30.8% for the S&P 500 ETF. This is an absolutely mind blowing performance. The annualized return of our short picks is -11.2%, vs. 11.8% annualized gain for the S&P 500 Index during the same period. The annual alpha of this strategy is 23 percentage points. Jim Chanos doesn’t generate this kind of performance. The best thing about this short strategy is that it provides an excellent hedge during market meltdowns. For example, in Q4 of 2018 when the S&P 500 Index lost nearly 14%, this strategy’s picks lost 25% protecting our premium subscribers from large losses.
Our newsletters are successful because we follow hedge fund managers like Nathaniel August to identify the best and worst hedge fund stock picks. In this article, we are going to take a look at Mangrove Partners’ holdings in Q2 2019.
At the end of the second quarter of 2019, Mangrove Partners’ 13F portfolio was valued at $884.5 million, up 18% from $747.83 million in the previous quarter. During Q2, the fund dumped 15 stocks, and added 29, ending up the quarter with 85 long positions in its portfolio. It didn’t hold a single position in one of 30 Most Popular Stocks Among Hedge Funds in Q2 of 2019. Let’s take a look at its most interesting Q2 investment moves and positions.
Starting with positions the fund lost enthusiasm for and decided to sell. The most valuable stake it dropped during Q2 was in Stemline Therapeutics, Inc. (NASDAQ: STML) worth $8.18 million, on the account of 636,513 shares. The second-biggest position the fund sold during the quarter was in Savara Inc. (NASDAQ: SVRA) counting 813,615 shares with a value of almost $6 million. Mangrove Partners also said goodbye to its valuable positions in Crescent Acquisition Corp. (NASDAQ: CRSAU), Trine Acquisition Corp. (NYSE: TRNE-UN), and Thunder Bridge Acquisition II, Ltd. (NASDAQ: THBRU).
Click here to read the rest of this article, where we discuss Mangrove Partners' biggest second-quarter positions.
This article was originally published at Insider Monkey.