Richard Mashaal and Brian Gonick’s Rima Senvest Management LLC beat the market in June, gaining 3.7% against the S&P 500 (INDEXSP:.INX)’s 2.1%, putting it up 10.6% through June versus 7.1% for the S&P 500 over the same period. The hedge fund’s June gains made up for its losses the previous month and put it back on track to maintain its 20.7% annualized returns since inception in 1997. The star Canadian hedge fund returned a whopping 80% in 2013.
Senvest explains its investment in YRC Worldwide
In this month’s investor letter Mashaal and Gonick gave a more detailed explanation of why they added less-than-truckload (LTL) trucking company YRC Worldwide, Inc. (NASDAQ:YRCW) as a new core holding. They initially took a short-term position on YRCW at the beginning of the year because a combination of labor union negotiations and debt refinancing were depressing its stock price.
The labor negotiations went well, essentially tying higher wages to increased profitability, and a debt for equity swap left YRC Worldwide, Inc. (NASDAQ:YRCW) with $1 billion in debt with no maturities until 2019 and interest payments reduced by a third. Mashaal and Gonick also point out that the company only has five analysts covering it, with a Buy three Holds and a Sell rating between them, compared to twenty or more sell-side analysts for its competitors. YRCW gained 25% in June and was one of the fund’s biggest contributors, but Mashaal and Gonick argue that the stock should be valued in the $47 – $65 range and that the market will eventually re-rate it.
Senvest writes that they look for poor sentiment and lack of following, despite the trans-formative traction, which they believe is the case here.
Senvest’s June winners and losers
Other major contributors in June include Senomyx Inc. (NASDAQ:SNMX) which gained 26% in June after it was announced that the flavor company would be added to the Russell 2000; Depomed Inc (NASDAQ:DEPO) gained 17% when prescription data backed management’s guidance for strong sales; Howard Hughes Corp (NYSE:HHC) was up 7% after announcing a joint venture in Las Vegas; and haptics licensor Immersion Corporation (NASDAQ:IMMR) was inexplicably up 18%. The letter also mentioned a new investment in an interactive gaming company that contributed to June gains.
Senvest’s worst performing position was women’s fashion accessory company Vera Bradley, Inc. (NASDAQ:VRA), down 19% after management lowered guidance for the rest of the year, but Senvest is taking the opportunity to increase its position and still believes its management will turn the company around. CEVA also lost 6% last month and short positions on oil and gas exploration, medical devices, and financial services companies also lost money in June.