Kynikos Associates, led by legendary Yale graduate Jim Chanos, is a New York City-based hedge fund famous for its short positions. Chanos is described as “a master of short selling”, and previously held short positions in doomed companies like Enron and Worldcom. His fund, founded in 1985, applies a fundamental analysis approach and strives to find companies with unreported or underestimated losses and then keep those short positions over a longer period until the company buckles under their weight. However, Kynikos does not only keep short positions, it also has a public equity portfolio valued at $212.76 million as of March 31, with its long positions being 45% tied up in the finance sector and 23% in technology. We’ll look at Chanos’ top picks from the latter sector in this article, which consist of Apple Inc. (NASDAQ:AAPL), Akamai Technologies, Inc. (NASDAQ:AKAM) and Fortinet Inc (NASDAQ:FTNT).
Professional investors like Chanos spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. However, we also know that the returns of hedge funds on the whole have not been good for several years, underperforming the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds performed far better than their large-cap picks, which is where most of their money is invested and why their performances as a whole have been poor. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned more than 142% and beaten the market by more than 84 percentage points since the end of August 2012, and by 4.6 percentage points in the first quarter of this year (see the details).
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So, let’s start first withApple Inc (NASDAQ:AAPL), a company often on the forefront of our collective consciousness. During the first quarter, Chanos decreased his stake in the technology giant by 33% to 53,532 shares with a value of $6.66 million. Apple Inc (NASDAQ:AAPL), with its impressive track record, got off to a strong start this year and is up by nearly 15% year-to-date, however shares have stalled now for four months, and are actually down during that stretch, leading investors to wonder when the next growth spurt in shares will come and what will trigger it. We do know it won’t be Apple Music, which we wrote about last week, and which hasn’t affected the stock in any positive way; in fact it was met with a resounding yawn. On June 17, rumors also begun circulating regarding the Apple Watch, which will soon be available in Apple Stores supposedly, in limited supplies. Thus far the Watch has only been available through online orders. Jim Chanos is of course not the only shareholder of Apple Inc (NASDAQ:AAPL); others include billionaires Carl Ichan and Ken Fisher, who hold 52.76 million and 10.81 million shares respectively.
Added to Chanos’ portfolio during the first quarter was Cambridge, Massachusetts-based Akamai Technologies, Inc. (NASDAQ:AKAM), in which he now holds a stake of 77,360 shares worth $4.50 million and representing 2.58% of his public equity portfolio. The cloud and security solutions company has increased by 15.6% on the NASDAQ year-to-date, but is down by 6.6% during the last month. Akamai Technologies (NASDAQ:AKAM) posted its earnings for the first quarter on April 28, and its $0.50 in earnings per share, were $0.01 short of what analysts had expected. Two weeks ago, Akamai Technologies revealed that it had formed a strategic alliance together with Chicago-based private company Trustwave, an alliance that will strive to improve incident response and vulnerability assessment. Another hedgie that took a stake in Akamai Technologies was Duquesne Capital led by Stanley Druckenmiller. 355,300 shares with a value of $25.24 million were purchased during the first quarter by the billionaire.
A new stake was also taken by Chanos in Fortinet Inc (NASDAQ:FTNT) during the first quarter, consisting of 156,862 shares with a value of $5.48 million. California-based Fortinet, which was founded in 2000 by brothers Ken and Michael Xie, has been having an exceptional performance on the stock market alongside the impressive returns of the online security industry as a whole, having gained 39.9% year-to-date and 81.6% during the last year. The network and computer security company posted its earnings for the first quarter on April 20, with earnings per share of $0.01. Despite the low earnings, which missed analysts’ expectations by $0.01, Fortinet Inc (NASDAQ:FTNT) impressed the market with its strong revenue growth of 26%. Furthermore, the fact that Fortinet Inc (NASDAQ:FTNT) carry’s almost no debt indicates that the financial position of the company is more than strong. The only cloud in the Fortinet sky, at least in terms of its stock, might be those big gains over the last year, which have raised concerns that there is little room for growth left in the stock at this point in time. Jerome Debs‘ Bodri Capital Management seemingly does not feel the same, as it increased its stake in the company by 25% to 250,000 shares with a value of $8.74 million during the first quarter.
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