Lei Zhang’s Hillhouse Capital Management has been one of the top performing funds we track during the first quarter of 2015, as our freshly updated list of the best performing funds shows. Based on our methodology of using weighted average returns for each of the fund’s long positions in companies that exceed $1 billion in market cap, Hillhouse Capital returned an impressive 22.8% last quarter from its 13 long positions. Billionaire Zhang, whose fund is based in Hong Kong, was profiled today in the New York Times, in which one of his investors reported that the fund has returned an average of 39% annually since it first opened its doors in 2005.
As a fund that invests primarily in Chinese companies that are traded on U.S exchanges, it brings a unique perspective to our database of over 700 different funds, whose small-cap picks we collate to create a list of 15 most popular companies from the small-cap space. We found through extensive research and backtesting that a portfolio that consists of 15 top small-cap picks greatly outperforms the most popular stocks, which are largely represented by mid- and large-cap companies, which are more efficiently priced, and less prone to providing large returns. This small-cap strategy has generated 130% in returns in the two-and-a-half years since its August 2012 launch, through March 11, trouncing the 52.6% returns of the S&P 500 ETF (SPY) (see the details).
It’s easy to see where the majority of Zhang’s returns comes from, as his massive stake in JD.Com Inc (ADR) (NASDAQ:JD), a company in which he was an early investor, accounts for a large percentage of his most recently disclosed equity portfolio. Zhang reported a stake of 152.42 million shares of JD.Com Inc (ADR) (NASDAQ:JD) valued at $3.53 billion. That is a 13.8% stake in JD.com and accounted for 80.22% of the value of Hillhouse’s equity portfolio. That was actually a slight decrease from the nearly 155.0 million shares that have been reported previously.
Naturally, JD.Com Inc (ADR) (NASDAQ:JD)’s stock had a strong first quarter, given Zhang’s overall returns, as they appreciated by nearly 27%. Overall, the stock has gained more than 43% since the company’s IPO in May, 2014, though it is still down slightly from the all-time high in late August. The Chinese e-commerce company’s fourth quarter revenue saw a huge boost, soaring by 73% on the year to $5.6 billion. Stephen Mandel’s Lone Pine Capital and Philippe Laffont’s Coatue Management also hold large stakes in JD.Com Inc (ADR) (NASDAQ:JD), of 8.82 million shares and 8.59 million shares respectively.
Mondelez International Inc (NASDAQ:MDLZ) is one of the few US-based companies Hillhouse has a long position in and it was its second largest position. His stake of 9.30 million shares was valued at $337.88 million, and accounted for 7.68% of his equity portfolio. Mondelez International is the former snacks division of Kraft Foods Group Inc (NASDAQ:KRFT), which was itself recently sold to 3G Capital, with backing from Warren Buffett. Both Mondelez and Kraft were charged yesterday with manipulating wheat prices in December, 2011, any monetary penalties of which will be borne by Mondelez according to a Kraft filing yesterday.
Mondelez International Inc (NASDAQ:MDLZ)’s largest shareholder among the funds we track, billionaire Nelson Peltz’ Trian Partners had pushed Mondelez to merge with the snacks business of, PepsiCo, Inc. (NYSE:PEP), another company he is invested in, though the investor dropped his plans later. Peltz owns 46.30 million shares of Mondelez International Inc (NASDAQ:MDLZ) as of the end of 2014, while another billionaire, Mason Hawkins, holds 26.74 million shares through his fund, Southeastern Asset Management. Mondelez International Inc (NASDAQ:MDLZ)’s stock inched down slightly during the first quarter, by less than 1%.
A position in Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) is the third-largest in Hillhouse’s equity portfolio as of the end of 2014, containing 3.76 million shares, valued at $170.86 million. That made him the second largest shareholder among those in our database, topped only by John Thaler’s JAT Capital Management, who owns 5.84 million shares. The investment in Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) paid off both Zhang and Thaler, among others, on March 20, when Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) ballooned by about 25% after a positive earnings report for the fourth quarter in which it posted revenue of $308 million, up by an annual 33%. The news was also good for Jason Karp of Tourbillon Capital Partners, who holds a long position in Ctrip.com of 2.25 million shares, and ‘Call’ options for 3.05 million shares. Karp pitched the stock at the Ira Sohn Conference last year, and called the company “…one of the best, highest probability growth names on the planet over the next decade.” Overall, Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) gained more than 28% in the first quarter.
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