John Burbank, the Chief Investment Officer of Passport Capital, has great stock picking skills as can be seen from the returns of his Passport Global fund, which has gained over 17% on an annualized basis since its inception versus the S&P 500’s annualized returns of 4.6% during the same period. As Passport Capital is one of the more than 700 funds that we follow, we have taken a look at some of its long positions, particularly focusing on companies with a market cap of over $1.0 billion. Mr. Burbank prefers to hold a diversified equity portfolio, which can be seen from the more than 150 positions disclosed in Passport’s latest 13F filing. However, out of them, only 107 holdings fit our criteria, with the weighted average returns of those positions being 7.9% during the first three months of 2015, though CNBC reported Burbank’s net returns as being 12.5% for the first quarter. Let’s take a closer look at five of Mr. Burbank’s picks which had some significant movement during the first quarter of the year.
Following the activity of some of the greatest stock pickers is of particular interest to us, because it helps us to build a portfolio from their most popular small-cap picks which has beaten the market by more than 80 percentage points during the last 2.5 years and returned over 137%. While the general opinion is that following the most popular picks among hedge funds can help an investor to outperform the market, we have designed a system that can do that with an even higher margin. The focus of our strategy are stocks from the small-cap space and every quarter we pick 15 companies that are the most popular among the funds from our database (read more details about why we follow hedge funds).
The first stock that we would like to mention is Vipshop Holdings Ltd – ADR (NYSE:VIPS), a $17 billion Chinese online discount retailer. We are discussing this company first not only because it represents one of the largest long positions in Mr. Burbank’s equity portfolio, but also because the stock surged by almost 51% during the first quarter of 2015. The investor slightly cut his stake in the company to 9.52 million shares (adjusted for the 10 for 1 stock split from November), with an aggregate value of $186.07 million, according to the latest 13F filing. Passport has been disclosing ownership of shares of Vipshop Holdings Ltd – ADR (NYSE:VIPS) since its 13F filing for the first quarter of 2013, and the stock has appreciated by more than fivefold since then. In his last letter to investors (for the fourth quarter of 2014), Mr. Burbank stated that Vipshop represented Passport’s largest technology position and the fund benefited a lot from the investment, while across its overall exposure to the technology sector there “were more losers than winners.” Moreover, Mr. Burbank has been recommending going long Vipshop Holdings Ltd – ADR (NYSE:VIPS) twice during his presentations at the SALT Conference in 2013 and 2014. Another shareholder with a large position in the company is Chase Coleman’s Tiger Global Management, which last disclosed ownership of 17.25 million shares.
Then there is another large gainer, Domtar Corp (USA) (NYSE:UFS), in which Passport owns 3.47 million shares, valued at $139.40 million, according to its latest 13F filing. The stock of the $2.8 billion manufacturer of paper products gained nearly 16% during the first three months of 2015, as the company reported a significant earnings per share (EPS) growth to $6.65 in 2014, from $1.36 a year earlier. In addition, Domtar Corp (USA) (NYSE:UFS) has one of the highest dividend yields among its peers from the paper & packaging industry, which amounts to 3.56%, the company paying a dividend of $0.38 per share. As is the case with most small companies, Domtar Corp (USA) (NYSE:UFS) is not very popular among the funds that we track, with only 22 investors disclosing long positions, among which are Chuck Royce, Israel Englander, and Jim Simons.
The stock of Cytec Industries Inc (NYSE:CYT) also had a rally during the first quarter, gaining 17.33%, beating the specialty chemicals industry by around 10 percentage points. Mr. Burbank inched down his stake in the company by 2% to 2.76 million shares during the fourth quarter of 2014, the value of the stake amounting to $127.52 million. In addition to strong growth, Cytec Industries Inc (NYSE:CYT)’s stock enjoys bullish sentiment from analysts, with Credit Suisse raising its price target to $61 from $57 with an ‘Outperform’ rating a couple of weeks ago, while Citigroup upgraded the rating to ‘Buy’ from ‘Neutral’ while upping the price target to $60 from $51. Passport Capital holds the largest stake in Cytec Industries Inc (NYSE:CYT) among the funds that we track, with other investors having disclosed much smaller positions in their 13F filings, such as Alexander Roepers‘ Atlantic Investment Management, which held a stake of 425,000 shares, the next largest.
Now that we have discussed three stocks from Mr. Burbank’s equity portfolio that posted impressive gains, let’s take a look at some under-performers and we will start with Bank of America Corp (NYSE:BAC), whose stock declined by 13.70% during the first quarter. Passport disclosed a new position in the investment back in its latest 13F, though it was not the first time it held shares of the company. Previously, the investor disclosed a new stake in Bank of America Corp (NYSE:BAC) in its 13F filing for the first quarter of 2013, but the position was sold off over the following three months. The previous round of 13F filings showed a decrease in popularity of Bank of America Corp (NYSE:BAC) among the funds that we track, as the number of investors declined to 94 from 101. Nevertheless, Bruce Berkowitz’s Fairholme and Ken Fisher‘s Fisher Asset Management maintained large positions in the company, even though they trimmed their exposure during the fourth quarter to 94.30 million shares and 41.93 million shares respectively.
Yahoo! Inc. (NASDAQ:YHOO) is another interesting case, as its stock fell by 12% during the January-March period. Mr. Burbank cut his stake by 81% during the fourth quarter to 1.40 million shares worth $70.93 million as of the end of 2014. Mr. Burbank mentioned Yahoo! Inc. (NASDAQ:YHOO) as one of the stocks he likes in an interview in October, a month after the IPO of Alibaba Group Holding Ltd (NYSE:BABA), in which Yahoo owns a substantial position. Back then, the investor stated that Yahoo has a lot of intrinsic value in its equity investments in Alibaba and Yahoo Japan and that Marissa Mayer would eventually unlock this value in one way or another. Well, Mr. Burbank was right about that as Yahoo! Inc. (NASDAQ:YHOO) announced the spin-off of its stake in Alibaba in January and he was also right about cutting his stake in the company, judging from the first-quarter performance of the stock. On the other hand, James Dinan’s York Capital Management and Christian Leone’s Luxor Capital Group both initiated stakes during the fourth quarter that contained 9.40 million shares and 9.22 million shares respectively.
Disclosure: None
