This Hedge Fund’s Picks Killed It in 2015; Check Out Its Picks For 2016

2015 wasn’t a great year for either the individual investor or for money management titans. However, there were a few long/short equity funds, which managed to buck the trend by selecting or holding on to the right stocks during that period. Matrix Capital Partners was one of them. The Massachusetts-based fund was founded by Julian Robertson protégé David Goel and famous private equity investor Paul Ferri in 1999. Our research on the fund’s 13F holdings in companies worth over $1 billion reveals that the 17 long positions held by the fund during 2015 delivered a weighted average return of 17.4% for the year. Matrix Capital Partners recently submitted its 13F filing with the Securities and Exchange Commission, revealing a US equity portfolio worth $2.22 billion, as of December 31. According to the filing, its equity portfolio had a quarterly turnover of 41.18% during the fourth quarter and its top five stock picks alone amassed nearly 60% of the value of its equity portfolio. In this post, we are going to discuss those five stocks.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012.(see the details here).

 #5 Lions Gate Entertainment Corp. (USA) (NYSE:LGF)

– Shares Owned by Matrix Capital Partners (as of December 31): 4.1 million

– Value of Holding (as of December 31): $132.36 million

Lions Gate Entertainment Corp. (USA) (NYSE:LGF) has lost almost half of its market capitalization since mid-October last year. This year the stock is currently trading down over 37% with more than half of those losses coming after the company reported its fourth quarter results. While analysts were expecting the company to report EPS of $0.49 on revenue of $804.87 million, it declared EPS of $0.45 on revenue $670.50 million. On February 24, shares of Lions Gate Entertainment Corp. (USA) (NYSE:LGF) spiked 8.8% amid rumors that there large streaming companies are interested in buying out its content. Analysts at Topeka Capital Markets reiterated their ‘Buy’ rating on the stock, while reducing their price target on it to $41 from $42, on February 26. Like Matrix Capital Partners, George Soros‘ Soros Fund Management also kept its stake (1.2 million shares) in the company unchanged during the fourth quarter.

#4 TransDigm Group Incorporated (NYSE:TDG)

– Shares Owned by Matrix Capital Partners (as of December 31): 617,783

– Value of Holding (as of December 31): $141.13 million

Amid a 7.5% rise in TransDigm Group Incorporated (NYSE:TDG)’s stock during the fourth quarter, Matrix Capital Partners kept its stake in the company unchanged. Like Lions Gate Entertainment Corp., TransDigm Group Incorporated (NYSE:TDG)’s also suffered a major decline after the company reported its fourth quarter results on February 9. However, it has recouped most of the losses since then and now trades down 5.11% year-to-date. Citing the 30% per annum annualized returns the company has provided to its shareholders in the last 10 years and the reasonable valuation it currently trades at – forward price-to-earnings multiple of 17.94 – most analysts feel the stock is a decent buy at current prices. The stock currently sports an average rating of ‘Buy’ with an average price target of $241.23 from the 13 prominent analysts who cover it. Billionaire Andreas Halvorsen’s Viking Global increased its stake in the company by 41% to 1.6 million shares during the October-December period.

#3 Tableau Software Inc (NYSE:DATA)

– Shares Owned by Matrix Capital Partners (as of December 31): 3.0 million

– Value of Holding (as of December 31): $282.66 million

Moving on, Matrix Capital Partners increased its stake in Tableau Software Inc (NYSE:DATA) by 4% during the fourth quarter. Shares of Tableau Software Inc (NYSE:DATA) plunged 49.4% on February 5 after the company came out with its fourth quarter numbers. It declared a per share loss of $0.33 on revenue of $202.80 million versus analysts’ projection of EPS of $0.16 on revenue of $200.89 million. For the same quarter of the previous financial year, the company had reported EPS of $0.42 on revenue of $142.90 million. Though the company is one of the largest player in the data visualization space and the big data market is estimated to grow to nearly $50 billion by 2019, analysts are concerned that increasing competition in the space will reduce Tableau Software Inc’s market share. Ken Griffin’s Citadel Investment Group also increased its stake in the company (By 165% to 508,626 shares) during the fourth quarter.

#2 Workday Inc (NYSE:WDAY)

– Shares Owned by Matrix Capital Partners (as of December 31): 3.96 million

– Value of Holding (as of December 31): $315.56 million

Even though shares of Workday Inc (NYSE:WDAY) rose over 15% during the fourth quarter and Matrix Capital Partners increased its stake in the company by 16% during the same period, Workday Inc (NYSE:WDAY) remained the fund’s second largest equity holding at the end of December. Workday Inc (NYSE:WDAY) is another stock in Matrix Capital Partners’ equity portfolio that has suffered a major decline this year, down over 25% year-to-date. Being a provider of enterprise cloud applications, the company faces almost the same concerns as Tableau Software Inc. Margins of the company have been nearly flat since the past few quarters and it expects its sales growth to continue to decline. The company is expected to report its fourth quarter earnings early next week and analysts’ estimate it will be reporting a per share loss of $0.04 on revenue $319.63 million, compared to a per share loss of $0.06 on revenue of $226.30 million it had reported for the same period of the previous financial year.

#1 Netflix, Inc. (NASDAQ:NFLX)

– Shares Owned by Matrix Capital Partners (as of December 31): 4 million

– Value of Holding (as of December 31): $458.14 million

The value of Matrix Capital Partners’ holding in the company rose by over $45 million during the fourth quarter, despite the fund keeping its stake in the company unchanged during that period. That’s because Netflix, Inc. (NASDAQ:NFLX) was a star performer last year with its shares registering gains of over 150%. However, this year the stock has changed its trajectory and is trading down 17% year-to-date. Most of the upside that the stock saw last year was because investors applauded the company’s growth in both adding more subscribers and expanding to new geographical location. Ironically, this year the stock has plummeted because investors are raising concerns about the same things i.e. the vulnerability of Netflix, Inc.’s subscribers and the challenges it will face in expanding its services to new locations. Even analysts are worried about the high valuations the company currently trades at and the large amount of expenditure it will have to incur going forward due to rising content cost. Philippe Laffont‘s Coatue Management increased its stake in the company by 8% to 6.43 million shares during the fourth quarter.

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