Zeke Ashton, Guy Spier, & Michael Lewitt: Value Investing Congress Presentations

Given the large amount of speakers at the Value Investing Congress, we're trying to dissect the day's events into digestible nuggets of information. The following article details the presentations from Zeke Ashton (Centaur Capital Partners), Guy Spier (Aquamarine Fund), and Michael Lewitt (Harch Capital Management).

We posted up comprehensive notes from day 1 of the Value Investing Congress here encompassing presentations by John Burbank, Lee Ainslie, and more. We've also highlighted Bill Ackman's question and answer session in a separate post as well. Make sure to check out those resources. Without further ado, the rest of the presentations from day 1:

Zeke Ashton ~ Centaur Capital Partners

Ashton has seen an impressive 16% CAGR since inception with his hedge fund, Centaur Capital Partners. He had some ideas in the property & casualty insurance space, notably Fairfax Financial (FRFHF) as well as Aspen Insurance (AHL). Fairfax is run by Prem Watsa, a man many have dubbed the 'Warren Buffett of the north' as he's based in Canada.

Aspen Insurance is a name we've seen in David Einhorn's portfolio for a while as well and Ashton believes it could see $40, a book value of 1.15 (it currently trades around $30 per share) as the company continues to buy back stock at a discount. He also sees Liberty Mutual as potential value when they eventually come public.

Turning to his next play, Ashton brought Biglari Holdings (BH) to the table. While he believes retailers in general are cheap, he sees BH trading at 8x free-cashflow and Sardar Biglari (the man in charge) only gets paid if FCF grows 6% per year. Many investors (particularly in the value investing community) have taken issue with Biglari's compensation package. Ashton sees lots of real estate value in BH and likes that they are shifting to a franchise model with their Steak n' Shake stores.

Biglari is essentially trying to create a Berkshire Hathaway-esque holding company/model as his company has made buyout offers for insurer Fremont Michigan (FMMH). Many have pondered whether or not Steak 'n Shake (now Biglari Holdings) was the next Berkshire Hathaway. Biglari also recently revealed a position in Sonic (SONC).

Centaur Capital Partners currently has 20% overall exposure to the retail sector. Ashton believes diversifying between retailers, restaurant, and a high quality operator (like Target - TGT) is beneficial in the space.

Lastly, Ashton mentioned that equity asset managers are cheap due to the public's current distaste for equities. He feels buying a basket of these stocks is a solid approach. He cited (CLMS) as an undervalued asset manager, Janus Capital (JNS), and also MVC Capital (MVC). Interestingly enough, the Centaur Capital Partners manager also noted his use of the iShares 20+ year treasury (TLT) as a hedge against interest rate risk.


Guy Spier ~ Aquamarine Fund

From a theoretical/educational standpoint, Spier highlighted to pay heed to a sign in Warren Buffett's office reading 'invest like a champ today.' Spier profoundly professed that starting relationships with the right people can have a very strong impact on your life as an investor. In particular, choosing the right investors for your fund sets your fate. He highlighted Whitney Tilson and Glenn Tongue's partnership to form hedge fund T2 Partners as well as Markel Corp (MKL) as another good example. On this notion, Spier recommended Michael Eisner's book, Working Together: Why Great Partnerships Succeed.

Shifting to specific picks, Spier actually sees Japan as a compelling potential investment. Screening for stocks in this universe returns a lot of companies with negative enterprise value, many of which are paying dividends and partaking in share buybacks. In particular, the Aquamarine Fund manager singled out Otaki Gas (TYO:9541), a pipeline company that owns assets in Japan. His best idea is slightly morbid in Heian Ceremony Service (JSD:2344), a funeral service business that can benefit from Japan's aging population.

Lastly, Spier had an intriguing quote on the notion of liquidity. He says that liquidity today is not important. Instead, liquidity is important when you want to exit a position.


Michael Lewitt ~ Harch Capital Management

Lewitt, also the author of The HCM Market Letter, started out by saying that we need to rid ourselves of fiscal problems because the traditional tools aren't working. He would prefer a constructive approach instead of pumping out another trillion dollars via quantitative easing round two. Lewitt feels that central banks are destroying currencies (especially in Japan). Also, he feels that naked credit default swaps (CDS) shouldn't exist and highlighted the situation with BP (BP) as an example. You'll recall that in the past we highlighted that Bill Ackman bought BP CDS.

In terms of opportunities, Lewitt sees bank loans as an attractive asset class because they are secured, can be leveraged to enhance returns, and many have 7% floating rates. As a play on bank loans, he likes KKR Financial (KFN). He highlights the 5.5% yield which should increase. He also singled out Tetragon Financial Group (AMS:TFG) trading in Europe.

Turning to bonds, Lewitt says junk bonds have been on fire (obviously). While he likes them, he notes you obviously have to be very selective due to their very cyclical nature. In particular, he finds value in BB and BBB corporate bonds.

Lastly, The HCM Market Letter author recommended utilizing ProShares UltraShort 20+ Year Treasury (TBT) as a way to short bonds. Keep in mind that since this is a leveraged ETF, it suffers from tracking error over longer time periods. He also advocated a long position in gold, something many managers have done.


That wraps up the presentations from these speakers. If you are on Twitter, we are posting live updates from the Congress on our @marketfolly Twitter feed. Be sure to also check out our comprehensive notes from day 1 of the Value Investing Congress.

Phil Hempleman's Hedge Fund Ardsley Partners Bullish On Pharmaceuticals: 13F Filing

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund 13F filings.)

This is the first time we've covered Philip Hempleman's Ardsley Partners so let's get a brief background. Hempleman founded the firm in 1987 and it is a long/short equity focused hedge fund that uses bottom-up stockpicking (the ideal type of fund for tracking purposes). Ardsley runs various funds including their Offshore Fund, Partners Fund, Partners Institutional Fund, etc and last we heard, they manage over $1 billion.

The positions listed below were Ardsley Advisory Partners' long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. All holdings are common stock unless otherwise denoted.


Brand New Positions
Google (GOOG) Calls
Merck (MRK)
Healthcare ETF (XLV) Calls
Merck (MRK) Calls
Apple (AAPL) Calls
Pfizer (PFE)
Teva Pharmaceuticals (TEVA)
Direxion Small Cap Bear 3x (TZA) Calls
Yuhe (YUII)
Baxter (BAX)
EGO Resources (EOG)
Healthcare ETF (XLV)
China Information (CPBY)
Fuel Systems (FSYS)
Aeropostale (ARO)
H&R Block (HRB)
Kenexa Corp (KNXA)
Avago Technologies (AVGO)
China Valves (CVVT)


Increased Positions
Telvent (TLVT): Increased position by 97.4%
American Public Education (APEI): Increased by 41.7%
Proshares Ultrashort 20 year Treasury (TBT) Calls: Increased by 40%


Reduced Positions
Zhongpin (HOGS): Reduced position by 4.8%
Mylan (MYL): Reduced by 1.15%


Removed Positions (Sold out completely):
Schlumberger (SLB) Calls
Google (GOOG)
Alcatel Lucent (ALU)
Apple (AAPL)
Schering Plough (SGP) ~ merger transaction complete
General Electric (GE) Calls
XTO Energy (XTO)
Gilead Sciences (GILD)
CVS Caremark (CVS)
China Natural Gas (CHNG)
Halliburton (HAL)
Chesapeake Energy (CHK)
Plains Exploration (PXP) Calls
State Street (STT)
Brocade Communications (BRCD)
Tellabs (TLAB)
Smart Balance (SMBL)
Exco Resources (XCO)
Asiainfo (ASIA)
Thermo Fisher Scientific (TMO)


Top 15 Holdings by percentage of assets reported on 13F filing

1. Google (GOOG) Calls: 6.12%
2. Proshares Ultrashort 20 Year Treasury (TBT) Calls: 5.74%
3. Merck (MRK): 5.41%
4. Healthcare ETF (XLV) Calls: 5.11%
5. Merck (MRK) Calls: 4.51%
6. Telvent (TLVT): 4.39%
7. Yongye (YONG): 4.25%
8. Apple (AAPL) Calls: 3.47%
9. Zhongpin (HOGS): 3.08%
10. Rino International (RINO): 2.54%
11. Pfizer (PFE): 2.24%
12. Teva Pharmaceuticals (TEVA): 2.08%
13. Direxion Small Cap Bear 3x (TZA) Calls: 2.03%
14. Mylan (MYL): 1.95%
15. American Public Education (APEI): 1.92%
    

The most intriguing aspect of Hempleman's portfolio is the fact that the majority of his top holdings are brand new positions and he sold completely out of previous large positions. So, we're definitely seeing some significant turnover here. It's apparent that Ardsley Partners fancies using options to make some of their investment wagers and we see that they are using calls on ultrashort exchange traded funds. Since they are betting that an ultrashort fund will rise via calls, we can interpret this as a short position, a hedge, or just a bearish bet. His largest bearish wager is on 20 year treasuries with calls on TBT. In the past, we've constantly detailed how many hedge funds are betting on rising interest rates.

Turning back to the equities portion of their portfolio, Ardsley initiated Pfizer as a new stake in the fourth quarter, a position we've noted that many hedge funds added. Interestingly enough, they also own two of the major generic pharmaceutical producers in TEVA and MYL. As you can see, health is a very apparent theme in Hempleman's hedge fund portfolio.

Of the stocks that Ardsley Advisory Partners sold completely out of last quarter, there are many notable names. Hempleman's hedge fund dumped past large positions in Schlumberger (SLB) Calls, Google (GOOG), Alcatel Lucent (ALU), and Apple (AAPL). So, there is an apparent shift in their portfolio here as they dump common stock of certain names in favor of call options. Overall, Ardsley reduced basic materials exposure and ramped up healthcare exposure.

Data used for this article comes from Alphaclone, our source for backtesting strategies and sorting through all the hedge fund portfolio maneuvers with ease. Assets reported on the 13F filing were $607 million this quarter compared to $525 million last quarter, a 15% increase. Remember that these filings are not representative of the hedge fund's entire base of AUM.

In our portfolio series we've already covered a ton of long/short equity hedge funds, including:
Value, Event-Driven or Activist focused funds such as: Seth Klarman's Baupost Group, Mohnish Pabrai's Investment Fund, Carl Icahn's hedge fund Icahn Partners, David Einhorn's Greenlight Capital, Warren Buffett's portfolio, David Tepper's Appaloosa Management, Dan Loeb's Third Point, Eddie Lampert's RBS Partners, Bill Ackman's Pershing Square Capital Management, Ricky Sandler's Eminence Capital.

'Tiger Cub' and 'Tiger Seeded' funds (hedgies somehow tied to Julian Robertson): Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, Lee Ainslie's Maverick Capital, David Ott's Viking Global, and Chris Shumway's hedge fund Shumway Capital Partners, Chase Coleman's Tiger Global, Roberto Mignone's Bridger Management, Philippe Laffont's Coatue Management Charles Anderson's Fox Point Capital, Jonathan Auerbach's Hound Partners, Lee Hobson's Highside Capital, David Stemerman's Conatus Capital, Matt Iorio's White Elm Capital, David Gallo's Valinor Management, Tom Brown's Second Curve Capital, and Robert Citrone's Discovery Capital.

As well as hedge funds employing other strategies: John Paulson's hedge fund Paulson & Co, Philip Falcone's Harbinger Capital Partners, Thomas Steyer's Farallon Capital, John Burbank's Passport Capital, Brett Barakett's Tremblant Capital, George Soros' hedge fund Soros Fund Management.

Be sure to check back daily for our new updates.

Treasuries

Gregor Macdonald has a great post up detailing an issue I've been mulling over myself: the flooding of the market with supply of treasuries. He writes,

"My view is that because current events in equity and credit markets are so dramatic, the market has not yet paid attention to the coming boundary, of debt-ology. However, I expect participants to direct their thinking this way quickly, once the intensity of the crisis lessens. I see two areas, where markets will inevitably focus.

First, The FED could be getting close to more unconventional measures, like direct buying of long-dated Treasuries to bring long-rates down. Second, the quantity of new Treasury issuance, both in train and intended, is so gargantuan that it’s not clear how the world would be able to actually take up the supply. There may be structural limitations. Simply put, it’s not clear there’s enough available capital in the world to increase the US debt position further. After all, we have already been sucking up the world’s savings for most of this decade. It strikes me the only method to ensure this new supply is taken up would be that other central banks would eventually have to monetize the USA, in the same way the USA is monetizing its own banking system. So future Treasury issuance may depend either on our own central bank to monetize it, or for foreign central banks to do the same. When either happens, I’m of the opinion it’s Game Over."

You can check out the rest of his post on the subject here. I mainy posted this up as food for thought and for a way to possibly play this impending situation. Over on Twitter, many of us finance/market junkies have been discussing tickers PST and TBT. PST is the etf for Ultra Short the 7-10 year treasury, and TBT is the etf for Ultra Short the 20+ year treasury. A few months ago, these vehicles didn't even exist. And, as of 2 weeks ago, I am long TBT. The consensus was that longer term maturity paper was a better short. Monitoring technical analysis on this name doesn't necessarily make a whole lot of sense given what it is, but I have noticed that the etf itself has seen support around $56/57 and resistance around $65, as noted in the chart below. Either way, I think this is a great longer-term play based on what we've seen lately in the supply of treasuries.

(click to enlarge)

I've posted regarding Gregor's writings before and would definitely suggest everyone check his blog out for some great insight into energy and other topics.