It was a weekend of baseball and 13F filings at Chez Melvin. The final deadline for money managers and hedge funds is 5 p.m. ET today, but many of them filed before closing up for the weekend. Most of my favorite value and activist managers have filed, but there are still a few who will slip the documents sometime today, so there will be another day or two of comparing and cross-checking left to accomplish this week.
13F filings comprise the world's greatest research department and there no salaries or bonus payments required. For the cost of a few hours of your time, you have access to what the best and brightest are actually doing with their cash. There is about a 45-day delay, but in times like today when markets are moving sideways or down, this can actually be a plus.
One of my must-reads every quarter is EJF Capital. Emanuel Friedman and his team are among the very best stock pickers in the business, especially when it comes to financial and real estate-related securities. I have stolen many successful ideas from them over the years and I hope to continue to do so for some time to come.
The first thing I noticed is that they have hedged their portfolio. They have large put positions in the Russell 2000 iShares ETF (IWM), the SPDR S&P 500 (SPY) and the SPDR S&P Regional Banking ETF (KRE). These don't appear in the fourth-quarter filing released in February, so I assume this a new move by the fund. It is not the worst idea I have ever heard of either. I have been looking at hedging my equity exposure since the first of the year, and I will have a longer conversation with myself on the subject now that I see some of the smartest people in the game are doing so. (Russell 2000 iShares ETF is part of TheStreet's Stocks Under $10 portfolio.)
The firm is also still very much in the trade of the decade and continues to buy smaller community bank stocks. I was pleased to see they were buying many of my favorite little banks in the quarter, including Sunshine Bancorp (SBCP), Atlantic Coast Financial (ACFC), Blue Hills Bancorp (BHBK), Hamilton Bancorp (HBK), First Northwest Bancorp (FNWB) and Malvern Bancorp (MLVF). They were also buyers of Atlantic Capital Bancshares (ACBI), Equity Bancshares (EQBK), Parke Bancorp (PKBK), Westfield Financial (WFD) and First of Long Island (FLIC) in the first three month of the year.
EJF Capital was also a buyer of some of the larger banks. It bought shares of my old favorite Sun Bancorp (SNBC) as well as Ameris Bancorp (ABCB), Peapack-Gladstone (PGC) and Central Pacific Financial (CPF). The firm also bought more Bank of America (BAC) during the quarter.
EJF was a big buyer of mortgage lender PHH Corp. (PHH) in the quarter, as that stock continued to decline on disappointing results. The company said on its last conference call that it was undertaking a strategic and capital review. At this time it was stepping back from the previously discussed growth-by-acquisition plans and halting any share buybacks until the process is complete. The company is one of the largest non-bank originators and servicers of residential mortgages in the United States, and that's been a tough competitive business the past few years. The stock is cheap at half of book value but management has some tough decisions to make and implement before we see a higher price. EJF apparently believes the stock will recover and it is far smarter than I, so the shares are worth a deeper look.
The firm was also buying shares of another mortgage-related company that has had a tough start in 2016. Radian Group (RDN) provides private mortgage insurance, risk management products and real estate services to financial institutions. Radian shares have fallen by 35% over the past year and EJF apparently feels they are at a bargain level. The shares are priced at just 11x earnings and 90% of book value, so they may well be right and the stock is poised to rally over the next few years.
I also see that since the end of the quarter EJF Capital filed a 13G announcing it now owned 9.8% of Severn Bancorp (SVBI) in my old hometown of Annapolis, Md. It's not the only buyer either, as CEO Alan Hyatt and four other directors were also buyers during a recent private placement of 2 million shares of stock. I am a big fan of this little bank and am greatly encouraged that EJF Capital also seems to think the bank and its share price have a bright future.
The folks at EJF Capital know the financial and real estate-related stocks as well as anyone in the business. They should be a must-read every quarter for investors interested in these sectors of the market.