Billionaire Lee Ainslie is the founder and the chief executive officer of Dallas-based Maverick Capital. He is also known as a pure long/short investor. Maverick Capital has been chasing growth as well as value socks. The firms’ strategy of diversifying its portfolio also helped it in generating average annual returns of more than 13% between 1995 to 2009. Julian Robertson’s Tiger cub has beaten the S&P 500 index on average by about 6-7 percentage points annually. The margin of outperformance has been declining in recent years though. Maverick's Long Fund returned 12.4% annually between 1995 and 2016, vs. 9.3% gain for the S&P 500 Index. We haven't seen Maverick's returns for 2020, however, the fund seemed to be doing well during the second quarter. Here is an excerpt from their investor letter:
"While unsurprising given dramatic uncertainty on such a wide range of critical issues, the market had a rollercoaster ride last quarter resulting in the strongest quarterly performance for the S&P 500 index, up 20.5%, since the fourth quarter of 1998 and the eighth strongest quarter since 1928. The S&P celebrated April Fool’s day by dropping 4.4% in one day to start the quarter, but then soared 31.3% in less than ten weeks. Over the final three weeks the index declined by 4.0%.
Instead of holding its stock investments for the long-term to chase dividends, the Tiger cub seeks to generate value in the short-term from its investments. This can clearly be seen from the average time held for top ten stocks of 2.90 quarters while the time held for top 20 stocks averages around 3.10 quarters.
Lee Ainslie MAVERICK CAPITAL
Lee Ainslie of Maverick Capital
For instance, Lee Ainslie's Maverick Capital trimmed its positions in top-performing companies like Amazon, Facebook, Google, Microsoft, and many others during the third quarter. These sales represent the hedge fund's strategy of capitalizing on share price gains and moving those funds into new investment opportunities.
Maverick Capital has been using the services of industry experts when making investment decisions. The Dallas based hedge fund’s most favorite sectors include health care, consumer, retail, financial, cyclical and telecommunications, media, and technology.
The hedge fund believes in diversifying its portfolio to maximize returns and minimize risk. The hedge fund has maintained a position in 561 stocks according to the latest 13F portfolio (518 of these positions were under $10 million in size, so we will be focusing on Maverick's larger positions as these are positions that drive the fund's returns). Maverick Capital has initiated 188 new positions and the hedge fund has added to 138 existing positions during the September quarter. On the other hand, the firm ended positions in 188 stocks and reduced positions in 234 stocks.
While Lee Ainslie's reputation remains intact, the same can’t be said of the hedge fund industry as a whole, as its reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Let’s start reviewing billionaire Lee Ainslie's top 10 stock picks to see how the tiger cub is looking to beat the market trends. The top ten holdings account for 45% of the overall 13F portfolio.
The world's largest streaming giant Netflix, Inc. (NASDAQ: NFLX) is the tenth-largest stock holding of tiger cubs hedge fund, accounting for 2.75% of the overall portfolio. The hedge fund has sold almost 36% of its stake in the September quarter to capitalize on massive share price gains. Netflix stock price is up 60% in the last twelve months.
Other hedge funds are also bullish on streaming giants. It was in 104 hedge funds’portfolios at the end of September, down slightly from the all-time high of 114. However, NFLX ranked 18th among the30 most popular stocks among hedge funds.
Ensemble Capital, which has generated returns of 22.66% in the second quarter of 2020, commented on a few stocks including Netflix. Here is what Ensemble Capitalstated:
“Netflix, Inc. (8.5% weight in portfolio): We’ve discussed our Netflix thesis in the past, but now we are going to highlight the competitive and financial strengths that Netflix has demonstrated since we last discussed the business a couple of years ago, especially in light of the expected competition that has finally arrived from traditional media companies launching their own streaming services, such as Disney. In addition, the emergence of the COVID-19 pandemic around the world has led to accelerating benefits for digital entertainment and global production.”
Maverick Capital has been holding a stake in Crown Holdings, Inc. (NYSE: CCK) since the final quarter of 2019. It is the ninth-largest stock holding, accounting for 3.16% of the overall portfolio. It appears that Tiger cubs hedge fund has benefited from Crown Holdings stake. This is because the shares of the Crown rallied 34% in the last twelve months.
The company has generated 17% year over year income growth in the September quarter on 2.9% revenue growth, reflecting strong operational efficiencies and cost cuttings.
The billionaire Lee Ainslie sold 28% of its Alphabet Inc. (NASDAQ:GOOG) stake in the September quarter to capitalize on its share price rally. Despite that, Alphabet accounts for 3.66% of the overall portfolio and represents the eighth largest stock holding. It is one of the long-running investment of tiger cubs hedge fund. Maverick first initiated a position in Alphabet in 2014.
Other hedge funds are also optimistic about the future performance of Alphabet. It was in 150 hedge funds’portfolios at the end of September compared to the previous all-time high of 148. In addition, GOOG ranks #7 among the30 most popular stocks among hedge funds.
Baron Opportunity Fund, which returned 17.92% for the third quarter, looks bullish over the future fundamentals of Alphabet. Here is what Baron Opportunity Fundstated:
“Considering solid Fund inflows, we added to long-term holding Alphabet Inc. to maintain its weighting in the portfolio. Alphabet is the parent company of Google, the world’s largest search and online advertising company. We increased our position in Alphabet this quarter as a protracted COVID-19-related recovery in travel and brand advertising presented an attractive buying opportunity. We are encouraged by improving trends in both search and YouTube, driven by durable tailwinds to e-commerce and local advertising, as well as the continued shift of video advertising dollars away from linear television as consumers increasingly cut the cable TV cord. We believe Google is becoming slightly more disciplined in capital allocation than it has been historically. Lastly, Google Cloud, which this quarter achieved a $12 billion revenue run rate under the leadership of Thomas Kurian, is having increasing success competing with larger vendors, due to its strengths in security, open-source, and data analytics.”
The largest e-commerce giant Amazon.com Inc. (NASDAQ: AMZN) is one of the favorite stock holdings of Maverick Capital. Although the Dallas based hedge fund reduced its position by 22% in the September quarter, Amazon still accounts for 4.22% of the overall portfolio. The hedge fund first initiated a position in Amazon during the first quarter of 2019. Shares of Amazon rallied 71% in the last twelve months.
Amazon is also the favorite stock of other hedge funds. It was in 245 hedge funds’portfolios at the end of the third quarter of 2020 and AMZN is the #1 stock among the 30 most popular stocks among hedge funds.
Baron Opportunity Fund commented on a few stocks including Amazon in an investor’s letter. Here is what Baron Opportunity Fundstated:
“Amazon.com, Inc. is the world’s largest retailer and cloud services provider. Shares were up on strong second quarter revenue metrics – with paid unit growth accelerating to 57%, a startling figure for a company of this scale – as Amazon benefited from recent investments in logistics and distribution to meet increased COVID-19-related demand. Amazon has the unique ability to deliver all the necessities of life safely to your doorstep, including groceries. Amazon also reported a stunning beat in operating profit, with $5.8 billion of operating income, almost six times Wall Street’s expected figure. While e-commerce penetration is rising rapidly and Amazon continues to grow its addressable market by entering new verticals, we continue to view Amazon Web Services as the more material driver of the company given its leadership in the vast and growing cloud infrastructure market and potential to compete in application software in the years to come.”
The Chinese e-commerce giant Alibaba Group Holding Limited (NYSE: BABA) is the sixth-largest stock holding of Maverick Capital 13F portfolio, accounting for 4.40% of the overall portfolio. Shares of Alibaba have been under pressure over the last few months amid regulatory pressure.
Alger Spectra Fund, however, believes that Alibaba is likely to take advantage of consumer’s shift towards online platforms. Here is what Alger Spectra Fund stated in an investorsletter:
“Alibaba is the dominant e-commerce platform in the Chinese economy, where e-commerce remains underpenetrated and fast-growing. It is also a leading player in China’s cloud computing, big data analytics. Digital media and entertainment markets. The performance of shares of Alibaba reflects investor excitement about its ability to exploit the large addressable market opportunities in e-commerce and cloud computing because of state-enacted barriers blocking foreign competitive entry. Additionally, the accelerating pace of consumer spending in China is one of the world’s greatest growth stories and Alibaba is a prime beneficiary.”
