We are now at the height of 13f season. With the deadline looming, money managers across the U.S. are rushing to get the filings in and reporters on all the financial networks are waiting in breathless anticipation for the filings from the superstars. I will read their filings and research their moves, but the information will be viewed and reviewed tens of thousands of times within minutes of the report hitting the SEC web site. I miss the days when we had a huge edge because no one else was bothering to read 13f reports, but those days are as far in the past as a yellow highlighter and S&P stock guide.
I do think there is still a huge edge in perusing the filings of lesser known but very successful investors. There are a lot of very talented investors that are off the radar screen of Wall Street and the media, and we can steal some great investment ideas from their portfolios. Wall Street might not know them very well but I do, and have stolen some very profitable ideas from these firms over the years.
One of my favorite firms to steal from is EJF Capital. The firm was founded by some people who were once an integral part of FBR & Company (FBRC) and have extensive experts in financial stocks and Real Estate Investment Trusts. They have a good nose for value and trends in these sectors and I spend a lot time with their filings every quarter.
The firm is still a big fan of trade-of-the-decade-type small bank stocks during the quarter. They added to their position in several community banks including some of my favorites like Timberland Bancorp (TSBK), Sun Bancorp (SNBC) and Eastern Virginia Bancshares (EVBS). They also bought shares of Meridian Bancorp (EBSB), Peoples Bancorp (PEBO), TFS Financial (TFSL), United Financial Bancorp (UNBK), Blue Hills Bancorp (BHBK), C1 Financial (BNK), Clifton Bancorp (CSBK), United Community Banks (UCBI) and Orrstown Financial (ORRF).
The trade of the decade in small banks is unfolding nicely. We are seeing a steady pace in M&A activity, and that should accelerate next year. In the meantime, continued credit improvement and modest rebounds in loan demand are helping excellent earnings growth this year. We are seeing dividend increases and new buyback announcements throughout the industry. The folks at EJF Capital have many years of successfully investing in small banks, so it is worth your time to research their holdings in this sector.
The firm also apparently still likes the single family home market place. They are not focusing on the builders but on the REITs that hold large single family housing portfolios. So far these REITs have disappointed investors, but I think the fund is on the right track as looking at home prices with a five-year viewpoint they look cheap. EJF bought shares of Colony Financial (CLNY), American Homes 4 Rent (AMH) and Silver Bay Realty Trust (SBY) during the third quarter.
They also like the mortgage side of the real estate markets as they were buying REITS that engage in both residential and commercial lending. On the residential side they bought shares of Penny Mac Mortgage Trust and Ellington Financial (EFC). REITs active favored by EJF in the quarter in the commercial lending space include Arbor Realty (ABR), Starwood Property Trust (STWD) and Agree Realty (ADC). In addition to appearing cheap based on asset values most of these REITs also feature high dividend yields so they are worth considering for income as well as long term growth potential.
The hotel market has been strong in 2014 with revenues and asset value increasing nicely. EJF Capital apparently expects the good times to continue. Theypurchased several hotel REITs in the quarter including Sunstone Hotel Investors (SHO), Chesapeake Lodging (CHSP), FelCor Lodging (FCH), Ashford Hospitality (AHT) and Summit Hotel Investors (INN). As the economy continues to improve, these should all do very well and with the exception of Felcor they all pay a very nice dividend, so you get paid well to own them.
The management at EJF Capital are among the very best when it comes to the financial stocks and REITs. These are the same guys that used to eat our lunch in the small bank stock sector when I was a stock broker. They came out of nowhere to take the market away from the regional firm I was working for in the late 1990s and early 2000s. It is nice to be able to use their experience and expertise to profit instead of battling against them, for a change.
