William Martin’s Raging Capital Management has scored a brilliant return in the first half of the year, even though it was up just by 0.9% in the second quarter,it is up 14.4% for the year.
Raging Capital has a CAGR of +26% since April 2006. Martin’s fund is in league with some of the highest gainers of the year.
Natural gas is the key
In the quarterly letter, a copy of which was reviewed by ValueWalk, the fund discussed its position in natural gas companies, EQT Corporation (NYSE:EQT) and Range Resources Corp. (NYSE:RRC). Martin called these investments “the invisible hand” and said that they were the fund’s largest long positions. The fund believes that the environment for natural gas supply and demand is going to improve. Companies like EQT and RRC have managed to stay profitable even in times when natural gas prices have remained depressed. The fund said that nat gas prices will have to move higher as demand increases with more export capacity and shifting of power generation from coal to natural gas. At the same time the supply chain is bound to get under pressure with developmental budgets tilting towards oil exploration. EQT Corp represents Raging Capital’s largest long position.
Another commodity fund having a great year is Philippe Laraison’s Duet Commodities. The hedge fund, which is up 12.87% through July according to sources familiar with the matter, believes that natural gas offers opportunity currently as a volatility trade.
Raging Capital Management’s new positions in Jive and 1-800-Flowers
Raging Capital took up new positions in Jive Software Inc (NASDAQ:JIVE) and 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS). The fund started buying up Jive in February of this year. The letter said that Jive has a good standing among software-as-a-service providers, however it is trading on the lowest multiples so there is considerable upside. Raging also thinks that there is a lot of potential for Jive to be acquired by larger company.
As for the florist, 1-800-FLOWERS.COM, Inc., the letter said that the company is all set to benefit from the upcoming holiday season. 1-800-FLOWERS also nationalized its offerings Fannie May and Cheryl cookies and upgraded its web platform, which makes it quite promising in Raging Capital’s opinion.
Building up the short portfolio
The fund also said it was short JDS Uniphase Corp (NASDAQ:JDSU) by way of put options. The technology company provides equipments to the telecommunication industry. Raging Capital said that the company is run by incapable management and is a poor combination of a number of businesses. The letter further said that JDS Uniphase could function better if it was broken up. The fund has so far claimed a good profit on half of its position in the company.
The letter also discussed the new short ideas of the hedge fund, without revealing any names. Currently Raging Capital is betting against a company which is in the process of using algae to produce renewable oils in place of carbon-based oils. In Raging Capital’s analysis, the market for this product is weak and the company will have to struggle for necessary demand. While the letter did not name any companies, Raging could be short Solazyme Inc (NASDAQ:SZYM). Solazyme announced a joint venture with Bunge Ltd (NYSE:BG) to manufacture oil from sugars.
Raging Capital is also shorting a company that provides internet security solutions to U.S government.