Here Are This Top Hedge Fund’s Conviction Technology Picks

John Horseman founded Horseman Capital, a London-based long/short equity hedge fund, about a decade-and-a-half ago. Because of Horseman’s astute stock picking, the fund has grown by several orders of magnitude since it started, as it now has an equity portfolio worth $393 million as of September 30. Although Horseman Capital focuses primarily on financial stocks, it also has sizable stakes in technology companies too. In this article, we take a closer look at Horseman’s recently filed 13F positions in tech stocks NetEase Inc (ADR) (NASDAQ:NTES), Infosys Ltd ADR (NYSE:INFY), Alphabet Inc (NASDAQ:GOOGL), Paypal Holdings Inc (NASDAQ:PYPL), and Check Point Software Technologies Ltd. (NASDAQ:CHKP).

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Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 102% over the last 37 months and outperformed the S&P 500 Index by 53 percentage points (see the details here).

#5 NetEase Inc (ADR) (NASDAQ:NTES)

Shares held (as of September 30): 2,900
Total Value (as of September 30): $348,000
Percent of Portfolio (as of September 30): 0.09%

Although shares of NetEase Inc (ADR) (NASDAQ:NTES) have been volatile recently as the wild gyrations in the Chinese markets have affected the stock, the equity price of the developer of Westward Journey Online and other MMORPG’s is up by 44.28% year-to-date as management executes and revenues grow. Online gaming is a major growth market in China, as is the mobile game market, and shares of NetEase trade at a reasonable 17.29-times forward earnings. Helping sentiment is NetEase’s September board announcement of a new share repurchase program of up to $500 million. Horseman Capital kept its position in NetEase steady at 2,900 shares throughout the third quarter.

#4 Infosys Ltd ADR (NYSE:INFY)

Shares held (as of September 30): 18,800
Total Value (as of September 30): $359,000
Percent of Portfolio (as of September 30): 0.09%

Although Horseman Capital trimmed its position in Infosys Ltd ADR (NYSE:INFY) by 34% in the third quarter, it still owned 18,800 shares at the end of September. Infosys recently reported solid second quarter earnings, in which the outsourcing giant earned $0.23 per share on revenues of $2.39 billion, beating estimates by $0.01 per share and $50 million, respectively. While the strong dollar had a 5.5% negative impact on sales, the company’s expenses could benefit from the dollar’s rally versus the Rupee given Infosys’ many Indian employees. Cliff Asness‘ AQR Capital Management owned 11.89 million shares of Infosys at the end of June.