Andreas Halvorsen’s long stock positions as disclosed in Viking Global’s latest 13F filing had a solid first quarter as they delivered an average return of 6.2% based on our calculations.
On the other hand, SPDR S&P 500 ETF Trust (NYSEARCA:SPY) merely inched 0.9% during the same period. Unlike Halvorsen, some hedge fund managers had it really rough in Q1, the chief among them being Kyle Bass of Hayman Advisors whose long stock picks in his latest 13F filing lost 18.9%.
Our methodology is based on long positions that these investment firms have in companies with over $1 billion in market cap.
While for Viking Global this number stood at 62 holdings, Hayman’s five stock picks were taken into account. Since hedge funds hedge their holdings and invest in various other securities, their actual returns may be significantly different from the approximate returns we have been calculating for their long stock picks.
After learning the tricks of the trade from the hedge fund legend, Julian Robertson, Halvorsen set up his own shop in 1999 with two fellow employees from Tiger Management, David Ott and Brian Olson. The former left the fund in 2010 while latter stepped down in 2005.
The $32 billion hedge fund has delivered an impressive 18% annualized returns since its inception. In 2014 when the average hedge fund performance hovered around 3.5%, Viking Global (Stock Picks, Investor Letters) posted 13.4% returns.
Market value of the fund’s portfolio stood at $21.78 billion towards the end of 2014 with the health care sector representing 31% of this value. Some of the fund’s best performing top picks included Valeant Pharmaceuticals Intl Inc (NYSE:VRX), Actavis plc (NYSE:ACT) and Walgreens Boots Alliance Inc (NASDAQ:WBA), while the new addition in the form of NXP Semiconductors NV (NASDAQ:NXPI) also delivered exceptional returns.
That alone doesn’t quite provide a complete picture of Halvorsen’s investment foresight. He also sharply cut his stake in Alibaba Group Holding Ltd (NYSE:BABA) during the fourthquarter, whose downturn during the first quarter has been disastrous for some funds.
Moving on to Viking’s stake in Valeant Pharmaceuticals, which comprised of 9.08 million shares valued at 1.44 billion. The fund’s third largest holding gained the most by 38.79% among the list of his picks under discussion. Besides posting an increase of 332% in quarterly earnings on a year over year basis, Valeant offers what very few other pharmaceuticals can.
Valeant has a well diversified portfolio with no drug accounting for more than 4% of revenues. On top of that the company has made very promising acquisitions recently, chiefly the purchase of the leading gastrointestinal drug maker, Salix for $14.5 billion.
Another smaller but nevertheless important purchase was that of the cancer drug maker Dendreon Corporation (OTCMKTS:DNDNQ), for which Valeant Pharmaceuticals paid $495 million. Jeffrey Ubben‘s Valueact Capital is another significant investor in Valeant that profited from the massive gains that the company posted in the first quarter.
Actavis’s rise of 15.62% over the quarter gave another bump to Viking’s portfolio value. The fund held 4.59 million shares valued at $1.18 billion of Actavis that recently completed its acquisition of the Botox-maker, Allergan, Inc. (NYSE:AGN). The $119.7 billion company recently sold off its generic drug business in Australia to a private company, Amneal Pharmaceuticals.
Among the billionaires that we track, 18 had an aggregate investment of $6.20 billion in Actavis towards the end of 2014. Third Point’s Dan Loeb was one of them as his fund held about 3.45 million shares valued at $888.06 million.
Shares of Walgreens Boots Alliance gained 11.6% during the quarter after WBA stock started trading this year following the merger of the Illinois-based drug retailing chain, Walgreen Company and the Swiss high street chemist and pharmaceutical giant, Alliance Boots. Walgreens Boots Alliance’s CEO had hinted last month that his camp is looking for another acquisition in U.S.
Speculations so far have been pointing towards the drugstore chain Rite Aid Corporation (NYSE:RAD). Barry Rosenstein’s Jana Partners is another significant shareholder of Walgreens Boots Alliance as it held 18.93 million shares valued at $1.44 billion at the end of 2014.
Halvorsen initiated a position in NXP Semiconductors during the fourth quarter with about 5.41 million shares valued at $413.45 million. The $25.27 billion technology company bore him pretty sweet results over the first quarter as it rose by about 31.36%.
NXPI stock outperformed the semiconductor industry by a huge margin as it was only up by 1.64% in comparison. Self-made billionaire James Dinan‘s York Capital Management and David Tepper‘s Appaloosa Management Lp are two other prominent stockholders of NXP Semiconductors.
Alibaba’s holding was slashed by 67% during the fourth quarter to 3.7 million shares valued at $385.48 million in Viking’s portfolio. BABA nosedived by 19.92% in Q1 as it missed the estimated revenue mark in its latest financial results.
Halvorsen was smart enough not to get too attached to Alibaba stock, from which many had too high expectations, and was quick to cash in his profits. Dan Loeb’s Third Point wasn’t so lucky as it held about 10 million shares of Alibaba valued at $1.04 billion.
Viking Global is a fund that we have been following for the last couple of years along with over 700 other investors. We follow hedge funds because our research has shown that their stock picks historically managed to generate alpha even though the filings are 45 days delayed.
We used a 60-day delay in our back tests to be on the safe side. Our research have shown that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points.
We have also been sharing and tracking the performance of these stocks since the end of August 2012. These stocks returned 132% over the last 2.5 years, outperforming the SPY by nearly 80 percentage points (see more details here).