Lee Ainslie’s Maverick Capital has filed its 13F with the SEC for the reporting period of March 31. Ainslie is a “tiger cub”, one of the many proteges of Tiger Management’s Julian Robertson who have gone on to have great success with their own firms and a noted value investor who has a penchant for investing in technology. 33% of the billionaire’s $6.21 billion public equity portfolio was invested in tech stocks, while Priceline Group Inc (NASDAQ:PCLN), Google Inc (NASDAQ:GOOG) and Aramark (NYSE:ARMK) were the top stock holdings of the fund manager. We’ve already covered Ainslie’s top new stock picks this reporting period, now let’s take a look at his top investments in small-cap stocks: Radian Group Inc (NYSE:RDN), Team Health Holdings LLC (NYSE:TMH), and SolarWinds Inc (NYSE:SWI).
Hedge funds and other big money managers like Lee Ainslie tend to have the largest amounts of their capital invested in large and mega-cap stocks like Google Inc (NASDAQ:GOOG) because those companies allow for much greater capital allocation. That’s why if we take a look at the most popular stocks among funds, we won’t find any mid- or small-cap stocks there. However, our backtests of hedge funds’ equity portfolios between 1999 and 2012 revealed that the 50 most popular stocks among hedge funds underperformed the market by seven basis points per month, showing that their most popular picks and the ones that received the bulk of their capital were not actually their best picks. On the other hand, their top small-cap picks performed considerably better, outperforming the market by 95 basis points per month. This was confirmed through backtesting and in forward tests of our small-cap strategy since August 2012. The strategy, which involves imitating the 15 most popular small-cap picks among hedge funds has provided gains of more than 144%, beating the broader market by over 84 percentage points through the end of April (see the details).
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Radian Group Inc (NYSE:RDN) is the largest small-cap stock holding of Maverick Capital, which holds a position of 17.39 million shares valued at $291.99 million in the credit enhancement company, which has a market cap of $3.45 billion. After years of recurring losses coming out of the financial crisis, the private mortgage insurance company is regaining financial stability. Radian Group Inc (NYSE:RDN) reported insurance in force worth $171.8 billion on December 31, 2014 against insurance in force worth $161.2 billion at the end of 2013. The insurance company also beat the market’s quarterly revenue and earnings estimates for the first quarter with earnings per share (EPS) of $0.35 against market estimates of $0.31 and revenue of $290.66 million against estimates of $222.75 million. Hudson Bay Capital Management, Senator Investment Group and John Paulson‘s Paulson & Co. are some of the major stockholders of Radian Group Inc (NYSE:RDN).
Team Health Holdings LLC (NYSE:TMH) comes in at number two on the list of top small-cap stock investments of Ainslie. The investment manager had 3.71 million shares of the healthcare administrative service provider valued at $217.35 million at the end of the first quarter. Team Health Holdings LLC (NYSE:TMH) has a market cap of $4.28 billion and its shares are trading at a P/E ratio of 41.88, indicating high investor expectations. The physician staffing company acquired the operations of Princeton Emergency Physicians, a staffing and management company serving 48,000 patients every year, earlier this month. Shares of Team Health Holdings LLC (NYSE:TMH) have remained mostly flat in 2015, with minimal growth of 1.65% year-to-date, though returns over the last year stand at a much stronger 18.79%. Pennant Capital Management and Millennium Management hold major stock positions in Team Health Holdings.
SolarWinds Inc (NYSE:SWI) is another top small-cap stock investment of Ainslie, who owns 2.56 million shares valued at $131.35 million. The enterprise solution company has a market cap of $3.71 billion and its shares also trade at a high P/E ratio of 47.25. As of now, SolarWinds Inc (NYSE:SWI) has received a consensus rating of “Buy” with a 1-year target price of $58.67 from analysts, which represents an upside of 21.14%. The technology company improved its cloud-based log management services with the acquisition of Papertrail in April for $41 million in cash. This acquisition indicates that the company is ready to offer management and support services for cloud applications and infrastructure. SolarWinds Inc (NYSE:SWI) has attracted investments from other large fund managers including SRS Investment Management, Lone Pine Capital, and Jim Simons‘ Renaissance Technologies.
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