Lee Ainslie’s Maverick Capital had one excellent quarter. Using the latest 13F filing, the firm achieved returns of 8.4% in its 44 long positions in stocks with a $1 billion market cap or more. Ainslie, a “tiger cub,” is known for his simplistic investing style of being long/short equities while avoiding commodities, currencies, bonds, or derivatives and for the past 7 years, Ainslie has led Maverick Capital to beat the S&P 500 on average by about 6-7 percentage points.
First, why do we even track hedge funds? Equity hedge funds returned just 1.4% in 2014 compared with 11.1% in 2013, and 4.8% in 2012. This is embarrassingly low compared to the SPDR S&P 500 ETF Trust (NYSEARCA:SPY)’s 13.5% gain in 2014, 32.3% gain in 2013, and 16% gain in 2012.
What is going on here? Have the managers lost their touch in picking stocks? The answer is a resounding no and the reason is simply size (see a more detailed explanation here). Our small-cap hedge fund strategy which identifies the best stock picks of the best hedge fund managers returned 28.2% in 2014, 53.2% in 2013, and 33.3% in 2012 (see the details here).
Now here’s how Ainslie led Maverick to outperform.
Hot with Hedge Funds
Maverick scored big with its 2.4 million shares held in Valeant Pharmaceuticals Intl Inc (NYSE:VRX) for a total amount of $347 million. The investment paid off very well as the stock surged 39% in the first three months. Maverick’s Valeant Pharmaceuticals Intl Inc(NYSE:VRX) position accounted for 5.4% of the total portfolio. We mentioned Valeant Pharmaceuticals Intl Inc (NYSE:VRX) back in February as one of the 10 most popular Healthcare stocks among hedge funds. Other fund managers benefiting from its recent run are Jeffrey Ubben, Andreas Halvorsen, and Stephen Mandel.
Bored with Google?
Think the stock of Google Inc (NASDAQ:GOOG) is done appreciating? Ainslie will surely disagree. In fact he might think the company’s growth is just getting started as the stock was one of the new positions in Maverick’s latest filing. He also didn’t tip toe into Google Inc (NASDAQ:GOOG) as it immediately became one of his fund’s top holdings at 5.4% of the firm’s portfolio. As of December 31, 2014, Maverick held 659,237 shares of Google Inc (NASDAQ:GOOG) amounting to a $347 million investment. Google made recent headlines as the company said it plans to transform the TV ad space to behave like internet ads. Further, Morgan Stanley CFO Ruth Porat is also set to leave her company and join Google as the new CFO. Google gained 4.1% in the first quarter of 2015.
Quietly Winning
One of Ainsley’s lesser known picks is Santander Consumer USA Holdings Inc (NYSE:SC). A number of banks recently initiated coverage on Santander Consumer USA Holdings (NYSE:SC) with Citigroup (C) even issuing a buy rating on the vehicle finance company and a $29 price target. Maverick Capital is one of the biggest shareholders among the funds we track holding 14.45 million shares valued at $283 million and accounting for 4.4% of the firm’s portfolio. Santander Consumer USA Holdings (NYSE:SC) was one of the firm’s 12 double-digit gainers surging 18% in the first quarter.
Buy With Conviction
Another big gainer was Vulcan Materials Company (NYSE:VMC). Ainslie led the big push into the construction aggregate producer in the last quarter of 2014 more than tripling the firm’s position in Vulcan Materials Company (NYSE:VMC) before year end. By the beginning of 2015, the firm held 2.8 million shares of Vulcan Materials Company (NYSE:VMC) valuing it at almost $186 million. The stock accounted for 2.9% of the firm’s portfolio and surged 28.4% for the first quarter of 2015.
Cut The Losers
Ainslie showed his investing prowess in not just his winners, but also his losers. As Alibaba Group Holding Ltd (NYSE:BABA) began to deal with fraud allegations toward the end of 2014, Ainslie cut the firm’s position in Alibaba Group Holding Ltd (NYSE:BABA) by 89%. Fraud or no fraud, Alibaba Group Holding Ltd (NYSE:BABA) continued to drop in the first quarter of 2015 by another 20%, but Maverick only held 250,000 shares for a $26 million investment, a mere 0.4% position in the portfolio.
Disclosure: none
