Not all hedge funds affiliated with Julian Robertson Jr.’s Tiger Management Corp. live and die by high-flying technology and Internet stocks.
When Conatus Capital Management shed 3.67 percent in its Conatus Capital Overseas fund in March — leading to a loss of 3.62 percent for the first quarter — the Greenwich, Connecticut–based hedge fund firm conceded that its five biggest losing positions were all in the tech, media and telecom sectors. The late March sell-off in the overall U.S. stock market, which extended into early April, hit these stocks the hardest, affecting many Tiger-affiliated funds.
The firm extended its losses in April. However, when the Conatus fund surged 4.07 in May, it was not solely because these same five stocks snapped back. Conatus, founded in 2007 by David Stemerman, a Tiger Grandcub because he previously worked for Tiger Cub Stephen Mandel Jr.’s Lone Pine Capital, tells clients in its May monthly letter that the $2.9 billion firm did especially well in emerging markets. The fund is still down by 4.8 percent for the year.
While its emerging-markets short positions were flat, its long positions outperformed the MSCI Emerging Markets Index by 700 basis points, or 7 percentage points, according to the letter. That index gained 3.5 percent for the month. “The performance in emerging markets was a standout in May,” the letter states.
Conatus does not disclose the specific investments among its top performers, although it does alphabetically list its 15 biggest contributors to performance. However, it singles out for discussion several positions that were either big contributors or big detractors from its May results.
For example, Conatus tells clients the long performance was led by the fund’s “long-standing positions in Indian banks.” Specifically, it says the HDFC Bank rose 10 percent, while ICICI Bank surged 14 percent after reporting strong loan growth and improving credit quality in April. Then in May a pro-business party won key Indian elections. So Conatus thinks the credit cycle is improving as the business climate is improving in India.
Ctrip.com, a position Conatus initiated in the third quarter of 2013, surged 19 percent. The Chinese online travel service reported very strong first-quarter results and its highest rate of growth in hotel room nights since it went public in 2003, the hedge fund firm points out. In addition, the company provided second-quarter guidance that exceeded consensus expectations.
Another overseas winner was Tencent Holdings, which calls itself China’s largest and most used Internet service portal. The stock gained 13 percent in May after reporting quarterly results that “were substantially better than market expectations,” according to Conatus.
Perhaps the hedge fund’s biggest gain came from shorting African Bank Investments, which plummeted 33 percent. Conatus says it is one of the securities in its “South African credit thematic basket” that reported earnings that were substantially worse than anticipated. “We expect credit quality to continue to deteriorate given the poor affordability of the consumer,” the hedge fund adds in its report.
Of course, Conatus did enjoy gains from some U.S. stocks. Shares of health insurance company Humana jumped 13 percent last month, and online travel company Priceline Group rose more than 10 percent.
However, Conatus also concedes that two different Internet media companies were among its 15 largest losers, although it does not specify the names. It also reveals that it lost 12 percent from GasLog, even though the energy company’s master limited partnership subsidiary, GasLog Partners, has surged since its May 6 initial public offering.
