13F filings are slowly filtering in over at the Securities and Exchange Commission. Most of the big guys will file at the last minute, on May 15, and the talking heads will go ballistic discussing what Warren, Bill, David and Seth were doing with their cash in the first quarter. (May 15 is the deadline for money managers to file their lists of holdings as of the end of the first quarter.) Other lesser-known managers are just filing when they get the paperwork done and some of my favorites were among earlier reporters this quarter.
This quarter, the list of early 13F documents includes those filed by Paul Isaac of Arbiter Partners. He is the nephew of Walter Schloss and his father worked for Max Heine, so he has an impeccable value pedigree. He has also put up some flashy numbers since he opened his shop in 2001. I have been "raiding" his 13F for several years now and have done very well pirating his stock selections.
I had the pleasure of briefly meeting Isaac a few years ago in New York and am happy to report that he is as pleasant and congenial as he is smart. Of course, the real test of a man's intelligence is how much he agrees with you and Isaac appears to at least agree with me about the "trade of the decade" in small banks. He owns a bunch of small community bank stocks and was buying again in the first quarter. His new bank selections include some of my favorites, which I take as huge vote of confidence for the trade of the decade's thesis and prospects for very high returns.
Arbiter opened new stakes in Beneficial Bancorp (BNCL), ESSA Bancorp (ESSA), Hamilton Bancorp (HBK) and First Northwest Bancorp (FNWB). He also added to his stake in United Bancshares Ohio (UBOH).
Isaac's biggest buy in the quarter was satellite communications provider Intelsat (I), which provides satellite, teleport and fiber infrastructure to telecom companies, the government and the military. The market hasn't loved Intelsat's results this year and the stock is down a little over 30% so far in 2015, so Isaac is buying the drop in this stock. Wall Street expects the company to grow revenues over the next few years, but Arbiter is apparently taking a much longer view. The stock is currently trading with a single-digit price-to-earnings (P/E) ratio so there could be quite a bit of upside over the next several years.
The firm also likes mortgage REIT Anworth Mortgage Asset (ANH), which was Arbiter's second largest nonbank purchase in the quarter. The shares are cheap enough right now, trading at just 80% of book value, and yield over 11% at the current price. In addition to residential mortgages, Anworth owns a portfolio of 97 residential properties in southeastern Florida. Wall Street analysts are negative on the mortgage REITs right now but the team at Arbiter has proven to be very intelligent, so Anworth is worth investigation, especially by investors in search of income.
The firm also purchased a stake in business development company MVC Capital (MVC). MVC has been warned by the NYSE that it is in danger of violating listing requirements as it is late with its 10K filing for the year ended October 31 and 10Q for the first quarter of fiscal 2015. This has weighed on the shares this year. I have to assume that Arbiter has done the homework and is comfortable with the valuations for the portfolio MVC recently posted on its website and thinks the stock can recover when the company finally get the filings done. I want to do my own check of the numbers, but this could be an interesting pick in one of my favorite income sectors. The stock currently trades for 65% of a questionable book value and yields 5.4%.
One of the biggest contributors to Issac's performance since 2001 is that he is not hesitant to take short positions in market darlings and high fliers. He uses a lot of put options to create his shorts and limit the damage if he is wrong but he is not afraid to make significant bets against "mo-mo" favorites.
The latest filing shows short bets against Amazon (AMZN), the iShares China Large Cap ETF (FXI), Netflix (NFLX), salesforce.com (CRM), Tesla Motors (TSLA) and Whole Foods (WFM). Some of these have been widow makers to those short the stock but if they should decline in 2015 the options held by Arbiter could lead the fund to the top of the hedge fund listings.
There will be more filings over the next few days and I will continue to play 13F pirate and look to steal the best ideas of some of the best investors of our time.