It was a busy weekend Chez Melvin, with lots of baseball, a little bit of NFL and stacks of 13F filings being devoured. The steady buzz of the shredder ran all weekend as the mounds of paper were studied, the data compiled and the paper then turned into -- much easier to dispose of and recycle -- bags of shredded strips. I make the same observation just about every quarter, but it is a source of amusement and amazement to me how much money is managed on a closet or quasi-index fashion at a fairly high cost. A lot of folks are paying up to 1% -- or even the dreaded 2 and 20 -- for what they could get by owning the SPDR S&P 500 ETF (SPY) at a whopping cost of 9 basis points. There is not a tremendous amount of original thought in the money management game, it seems.
That's why it makes so much sense to pay attention to those who are thinking and investing outside the box. As such, I am a huge fan of tracking the buys and sells of alternative investment outfit EJF Capital. The management traces its heritage back to Friedman, Billings, Ramsey & Co -- a firm I am very familiar with, having lived in, and done business in, the mid-Atlantic region. EJF was founded back in 2005 and now manages over $4 billion -- with a focus on real estate and finance. I have stolen some really profitable ideas from its filings over the years and hope to continue pirating the firm's research for years to come.
In the second quarter, it was pretty active. EJF Capital continues to share my enthusiasm for the small-bank space, and they bought several more community banks. The firm bought new stakes in Howard Bancorp (HBMD), MidSouth Bancorp (MSL), Entegra Financial (ENFC), BNC Bancorp (BNCN) and Carolina Bank Holdings (CLBH). EJF also added to its positions in Independent Bancorp (IBCP), First of Long Island (FLIC), Orrstown Financial (ORRF), Eastern Virginia Bankshares (EVBS) Royal Bancshares of Pennsylvania (RBPAA), Avenue Financial (AVNU), and Hampton Roads Bankshares (HMPR)). It has been am active buyer of community banks for the past several years and shows no signs of losing interest.
The team at EJF Capital also apparently like what they sees in the larger too-big-to-fail names, and some of the large regional banks, as well. The firm was a buyer of both Citigroup (C ) and Bank of America (BAC) during the second quarter. Among the larger regionals, the firm bought Comerica (CMA), KeyCorp (KEY) and SunTrust (STI). I have owned KeyCorp for some time, and see no need to sell it anytime soon. I am watching Comerica carefully -- as the stock could get really interesting if falling energy prices pressure earnings and causes a significant share decline. I have exactly zero interest in the larger banks: They have so many moving parts that the real value is tough for me to decipher (and I confess to a severe anti-too-big-to-fail bias).
The firm was active in REITs again, as well. Along with financial, this sector is a core part of its portfolio. One of its bigger buys in the quarter was Colony Capital (CLNY), which completed its merger with Colony Financial during the quarter to become what management calls a "global real estate and investment management firm, structured as a diversified-equity REIT and possessing a $10 billion balance sheet." This is one of my favorite long-term real estate picks right now. They own a portfolio of properties comprised of 315 primarily light-industrial assets covering 33.4 million square feet across 16 major U.S. markets. The single-family segment owns 23% of Colony American Homes, which holds a portfolio of more than 19,000 homes in 19 states. Colony also has equity and debt investments in a wide range of commercial real estate related companies and properties. The stock trades at 88% of book value and yields 6.74% at the current price.
EJF Capital also was a buyer of American Capital (ACAS), New Residential Investment (NRZ), Wheeler Real Estate Investment Trust (WHLR), Ares Commercial Real Estate (ACRE), NexPoint Residential (NXRT), Chatham (CHTM) and FelCor Lodging (FCH) in the quarter.
The firm put a baby toe in the water in the big sea of energy stocks. It bought a mix of Master Limited Partnerships and operating companies. If you are looking to play a rebound in energy, it might make sense to run through the firm's filings and research its purchases. I will note, however that energy makes up less than 1% of EJF's capital under management -- so they are not exactly backing up the truck.
The firm has an office in China, and the filing includes several Chinese companies listed in the U.S. EJF has apparently done well in China, but it is still on my no-no list of places to invest -- so I will let those interested in Chinese stocks track down the individual picks on their own.
The EJF Capital team has proven themselves to be very smart, very successful investors and this is especially true when it comes to financial and real estate related securities. It just makes sense to steal ideas from their quarterly filings for long-term investment portfolios.
