Jason Karp’s Tourbillon Capital Partners may bear the dubious number of 666 in our hedge fund database, but the fund’s returns have been anything but since its inception. Launched early in 2013 by Karp, a former employee of disgraced firm SAC Capital Partners, he had no trouble lining up investment dollars for the launch of his own long/short equity fund, initially opening with $250 million in assets under management. The new fund returned 20.7% net of fees in 2013, and had returned 8.7% in 2014 through September. That success has continued into 2015, with the fund’s 34 long positions in $1 billion+ market cap companies achieving big weighted average returns of 10.8% in the first quarter (note that the fund’s actual returns may be quite different, as the performance of the fund’s numerous undisclosed short positions is unknown).
Professional investors like Karp, spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. However, while Karp’s returns have been strong the past two years, 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. A portfolio of the 15 most popular small-cap stocks among funds outperformed the S&P 500 Total Return Index by 95 basis points per month between 1999 and 2012 in backtesting. The exceptional results of this strategy got even better in forward testing after the strategy went live at the end of August 2012. A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned more than 137% and beaten the market by more than 82 percentage points since then, and by 4.6 percentage points in the first quarter of this year (see the details).
Surprisingly, Karp achieved his big first quarter gains despite his largest long position in DISH Network Corp (NASDAQ:DISH) struggling during the quarter, to the tune of a 3.88% loss. The 1.85 million share position valued at $134.85 million at the start of the year, was increased by 33% during the fourth quarter and accounted for 3.63% of Karp’s equity portfolio. It’s possible Karp is banking on DISH Network Corp (NASDAQ:DISH) finding a big merger partner, which has yet to materialize despite persistent rumors connecting it to DirecTV (eventually purchased last year by AT&T Inc. (NYSE:T)), and Verizon Communications Inc. (NYSE:VZ). That didn’t stop DISH shares from rising by 25% during 2014 however, leaving Karp a happy investor regardless. DISH Network Corp (NASDAQ:DISH) is also a top long-term pick of billionaire James Dinan.
Karp’s position in Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) was a big winner for him in the first quarter, and also helped several other funds to big quarters including Hound Partners, Hillhouse Capital Management, and JAT Capital Management. Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) was able to propel so many funds to big returns thanks to 28.84% returns during the first quarter. In Karp’s case, the position was his third-largest long position, and consisted of 2.25 million shares valued at $102.38 million. It’s also a stock he expressed very bullish sentiment on in the middle of last year, declaring it “[…]one of the best, highest probability growth names on the planet over the next decade.”
Karp took advantage of an October swoon in Avago Technologies Ltd (NASDAQ:AVGO)’s shares to open a new position of 645,000 shares in the company during the fourth quarter, clearly believing it had a big rebound in it despite already having appreciated by about 65% during the past calendar year, even factoring in the big October dip. He was certainly right, as Avago Technologies Ltd (NASDAQ:AVGO) has since leapt by another 75%, including by 26.61% during the first quarter. A key supplier to Apple Inc. (NASDAQ:AAPL), another of Karp’s top picks, Avago Technologies Ltd (NASDAQ:AVGO)’s business has made big strides since the middle of 2013, coinciding with Apple’s own turnaround and boisterous growth. Philippe Laffont’s Coatue Management has by far the largest position in Avago Technologies Ltd (NASDAQ:AVGO) of any fund in our database, of 8.53 million shares.
With that perfect seque we come toApple Inc. (NASDAQ:AAPL), a stock in which Karp doubled his long position in to 500,000 shares during the fourth quarter, valued at $55.19 million. At the same time however, he did open a position of put options underlying 300,000 shares as well, though likely as nothing more than a hedge against his other positions. This is not really surprising, as Apple Inc. (NASDAQ:AAPL) was one of the leading stocks in which funds in our database were buying protection against, which we determined was largely hedges and not bearish bets. One investor who is not concerning himself with protection from Apple is Carl Icahn, the extremely bullish activist shareholder of the company, who is pushing Apple to return some of its hoard of cash to investors and insists the stock will hit $200 eventually. Icahn has a $5.82 billion position in Apple Inc. (NASDAQ:AAPL), which was up by 13.17% during the first quarter.
Lastly, Karp reported a new 200,000 share position in Amazon.com, Inc. (NASDAQ:AMZN) in his latest 13F filing, which proved to be a very wise move. Amazon.com, Inc. (NASDAQ:AMZN) had a superb first quarter after a strong earnings report, gaining just under 20%. Amazon continues to research and develop drones for use as future package carriers, which could result in speedy and cheap deliveries to greatly enhance its gigantic online marketplace. Karp’s former boss at SAC, Steve Cohen, who now manages his family office Point72 Asset Management, is also an investor in Amazon.com, Inc. (NASDAQ:AMZN).
Disclosure: None
