We are 3 weeks away from the 13F filing deadline but it seems like hedge funds are exiting their bets in favor of other mega-cap tech companies. On Monday we reported that Patrik Brummer’s Swedish hedge fund sold his Apple Inc. (NASDAQ:AAPL) stake and made Alibaba (BABA) and Google (GOOGL) its top two picks. Today we have seen a copy of Lone Pine Capital’s Q2 investor letter. Lone Pine Capital’s various funds returned around 7-7.5% during the first half of this year vs. 1.2% gain for the S&P 500 Index. Billionaire Stephen Mandel is one of the most successful Tiger cubs and he has been betting on Apple since the fourth quarter of 2014. At the end of March Lone Pine owned more than 6.8 million shares of Apple. According to Lone Pine’s investor letter the fund exited “long-standing positions in Apple, Baidu (BIDU), Global Logistic Properties and Michael Kors – in favor of increasing several existing positions (Charter Communications, Facebook, Illumina, Microsoft, Williams Companies)”. 
“…value is being created in today’s equity markets, principally in two ways: through innovation and through the deployment of capital, using low interest rate debt to fund capital investment, share repurchase and acquisitions. Our portfolio largely reflects these two valuecreation methods, with the vast majority of our capital in these two broad areas. We remain committed to internet-enabled and enabling businesses globally, companies that are reshaping advertising, entertainment, networking, retailing and travel, among other industries. We are also invested behind innovation in energy, enterprise software and networks, genomics, manufacturing and pharmaceuticals. ”
Follow Stephen Frank Mandel Jr.'s Lone Pine Capital
Actually Mala Gaonkar laid out Lone Pine’s investment thesis at this year’s Sohn Conference in May. She said “legacy tech remains misunderstood”. Microsoft benefited from activist ValueAct Capital’s involvement. She likened Microsoft to a super tanker that is slowly turning itself around. Microsoft, which is one of the biggest software companies in the World, and other legacy tech companies control 85% of the cloud software market and this is a high growth market with 20% annual growth rates. She predicted $106 billion in revenue and almost $4 EPS for 2016. She estimated Microsoft’s top line growth rate at 9%.
Last week we reported another hedge fund selling its tech holdings including Apple, Facebook, Amazon, and Netflix. Glaxis’ Matthew Miller cited that near-term price targets had been reached for many of those positions, and that they felt a defensive posture was in order given seasonality and the current macroeconomic environment. Apple was the second most popular stock among 700+ hedge funds we are tracking at the end of the first quarter. Apple lost a few of its billionaire supporters during the first quarter and dropped to 6th place among billionaires. Even though Apple was in several hedge funds’ portfolio, overall , hedge funds owned less than 3% of Apple’s outstanding shares. Hedge funds tracked by Insider Monkey collectively owned 5.7% of the stock market, so overall they were about 50% underweight Apple.
Steve Mandel is a Tiger cub and there were several Tiger cubs with large positions in Apple at the end of March. Our analysis indicates that there is a high level of correlation among these investors because they share ideas with each other. It is likely that other fund managers might be selling their Apple holdings during the second quarter as well. We don’t know exactly why Lone Pine sold out of its Apple position but it isn’t a secret that Apple’s strong performance over the last 12 months is tied to the success of iPhone6 as well as skyrocketing sales in China. Lone Pine said “most of the current investment discussion centers on the future of the European Union, the stability of China and the timing of Federal Reserve interest rate hikes,” in its investor letter. It is possible that the sale of Apple and Baidu shares was a defensive move. We will find out in a couple of hours whether these macro events had any material effect on Apple’s Q2 results.
