Tairen Capital’s Completely Revamped Top Stock Picks

Tairen Capital is a Shanghai-based equity long/short hedge fund co-founded by Larry Chen and Terry Zhang in 2007. Earlier this year, the Tairen China Fund of Tairen Capital won the awards for being the best Greater China hedge fund and the best Asian long/short equity fund at this year’s Eurekahedge Asian Hedge Fund Awards organized by data provider Eurekahedge.

Tairen Capital has been among the best performing and most highly-regarded hedge funds on the Asian continent in recent years, so it would definitely be in the best interest of investors to take a look at the fund’s equity holdings and monitor its quarterly moves, of which there were many, as the fund had a turnover rate of 77.14% during the quarter. Roughly 62% of the hedge fund’s equity portfolio consisted of technology-related investments on June 30 and its U.S. equity portfolio was worth $467.27 million at that time, up from $380.85 million at the end of March. Without further ado, let’s check out the hedge fund’s largest equity holdings as of the end of the June quarter.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

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#5. NVIDIA Corporation (NASDAQ:NVDA)

 – Shares Owned by Tairen Capital (as of June 30): 235,200

 – Value of Tairen Capital’s Holding (as of June 30): $11.06 Million

Tairen Capital acquired a new stake of 235,200 shares of NVIDIA Corporation (NASDAQ:NVDA) during the second quarter of 2016, which was valued at $11.06 million on June 30. NVIDIA makes accelerator chips for processing video and images, vital elements of the virtual reality ecosystem. Thus, the world leader in visual computing operates as a supplier of microchips to help power a device that may be the biggest thing since the launch of the iPhone. Analysts believe that VR systems will meaningfully change business processes in many industries in the foreseeable future, so NVIDIA will surely benefit from this imminent technological transformation. For instance, imagine an interior designer who offers clients the opportunity to take a virtual tour of a remodeled kitchen as it will look, before the actual work has even started. NVIDIA has seen its market capitalization gain an impressive 70% this year. Fang Zheng’s Keywise Capital Management owns 1.15 million shares of NVIDIA Corporation (NASDAQ:NVDA) as of June 30.

#4. Qihoo 360 Technology Co Ltd (NYSE:QIHU)

 – Shares Owned by Tairen Capital (as of June 30): 234,039

 – Value of Tairen Capital’s Holding (as of June 30): $17.10 Million

The Shanghai-based hedge fund trimmed its position in Qihoo 360 Technology Co Ltd (NYSE:QIHU) by 78% during the three-month period ending June 30, to 234,039 shares. The reduced position was worth $17.10 million at the end of June and constituted 3.7% of the value of the hedge fund’s U.S. equity portfolio. Qihoo, the owner of China’s second-biggest search engine, is on track to become a private company by the end of this summer, as a $9.3 billion buyout led by a consortium of investors steered by the company’s Chairman Zhou Hongyi is expected to close before mid-August. Qihoo is set to be the biggest buyout of a U.S.-listed Chinese company, as Chinese authorities do not want to encourage buyouts of overseas-traded companies, as they could lead to significant depreciation pressures on the yuan. The shares of the security software specialist are 5% in the green year-to-date. Israel Englander’s Millennium Management owned 245,190 shares of Qihoo 360 Technology Co Ltd (NYSE:QIHU) at the end of March.

Let’s head to the next page of this article where we’ll reveal Tairen Capital’s largest equity holdings as of the end of the June quarter.

#3. Yum! Brands Inc. (NYSE:YUM)

 – Shares Owned by Tairen Capital (as of June 30): 207,139

 – Value of Tairen Capital’s Holding (as of June 30): $17.18 Million

The equity long/short hedge fund firm added a 207,139-share position in Yum! Brands Inc. (NYSE:YUM) to its portfolio during the April-to-June quarter, which was valued at $17.18 million on June 30. The owner of fast food chains KFC, Pizza Hut and Taco Bell plans to separate its China business into a separate company due to a series of food safety scandals that put massive pressure on sales in the country. Yum’s China division has 7,246 outlets, predominantly KFC and Pizza Hut Casual Dining restaurants. Fresh reports suggest that the fast-food giant’s sale of its China franchise recently came to a standstill after failing to agree on the sale price with the two main bidders. China-based private equity fund Primavera and Singapore’s wealth fund Temesek submitted offers for parts of Yum’s assets. The planned spin-off has a targeted completion date of around the end of October. Yum! Brands shares are up by 23% in 2016. Keith Meister’s Corvex Capital was the owner of 21.04 million shares of Yum! Brands Inc. (NYSE:YUM) at the end of the first quarter.

#2. Amazon.com Inc. (NASDAQ:AMZN)

 – Shares Owned by Tairen Capital (as of June 30): 28,700

 – Value of Tairen Capital’s Holding (as of June 30): $20.54 Million

Tairen Capital also snatched up a new stake of 28,700 shares of Amazon.com Inc. (NASDAQ:AMZN) during the second quarter, which was worth $20.54 million on June 30. The new stake accounted for 4.4% of the hedge fund’s U.S portfolio, which also includes several voluminous investments in exchange-traded funds and options positions, which we will not cover. Just recently, the world’s biggest online retailer reported its third consecutive quarter of record profit, with the company’s second quarter bottom-line increasing to $857 million from just $92 million posted a year earlier. The e-commerce giant’s net sales rose to $30.40 billion from $23.19 billion year-over-year, partially reflecting the strong performance of the company’s Amazon Web Services cloud computing division and an increase in subscriptions for its Prime loyalty program and video service. AWS revenue increased to $2.89 billion from $1.82 billion a year prior, with the unit remaining on track to meet the goal of reaching $10 billion in sales this year. Amazon shares are 11% in the green in 2016. Ken Fisher’s Fisher Asset Management cut its stake in Amazon.com Inc. (NASDAQ:AMZN) by 21% during the second quarter to 1.98 million shares.

#1. Alibaba Group Holding Ltd (NYSE:BABA)

 – Shares Owned by Tairen Capital (as of June 30): 1.38 Million

 – Value of Tairen Capital’s Holding (as of June 30): $110.10 Million

Alibaba Group Holding Ltd (NYSE:BABA) was the largest position in Tairen Capital’s pool of U.S.-traded holdings at the end of the June quarter, accounting for a whopping 23.6% of the fund’s equity portfolio. The Shanghai-based hedge fund upped its Alibaba stake by 1.29 million American Depositary Shares during the second quarter, to 1.38 million ADS’s. In early July, analysts at Oppenheimer raised their price target on the Chinese e-commerce giant to $110 from $100 and reiterated their ‘Outperform’ rating on it, saying that market participants are “massively underestimating” the company’s cloud computing arm AliCloud. Oppenheimer analysts anticipate a “revaluation of BABA similar to AMZN in 2015” (Amazon.com, Inc. (NASDAQ:AMZN) gained 146% in 2015). On the other hand, renowned short-seller Jim Chanos has voiced his short investment thesis on Alibaba, saying that the company’s accounting practices are “as alarming as Enron’s.” Alibaba ADS’s are up by 2% so far in 2016. Fisher Asset Managements owns 3.22 million ADS’s of Alibaba Group Holding Ltd (NYSE:BABA) as of the end of the second quarter.

Disclosure: None