Stephen Mandel Jr.’s Lone Pine Capital continues to rebound from its disappointing year in 2014, thanks to savvy bets on stocks that are profiting from two major trends, the firm said in a letter to investors.
Last year Tiger Cub Mandel’s flagship long-short hedge fund, Lone Cypress, posted a paltry 0.2 percent gain, while Lone Kauri — a subset of Lone Cypress that requires the stocks it invests in to have a minimum of $20 million in average daily trading volume — gained 0.9 percent. Lone Cascade, the firm’s long-only fund, gained 2.7 percent for all of last year, while Lone Tamarack, which was launched at the beginning of 2014 and was the firm’s first new long-short equity fund in more than a decade, added 4.4 percent. (It is a subset of the two other long-short funds. It restricts its investments to stocks with at least $50 million in average daily trading volume.)
By contrast, this year Lone Cypress posted a gain of 2.7 percent in the second quarter alone and is now up 6.9 percent for the year, according to the firm’s July 15 letter to investors, obtained by Alpha. Lone Kauri rose 2.8 percent in the recent quarter and is up 7.6 percent for the year. Lone Tamarack gained 2.6 percent for the quarter and has returned 7.9 percent for the year. Lone Cascade added 2.2 percent in the second quarter and 6.8 percent for the first half.
To be fair, last year’s performance was not typical. Since its January 1, 1998, inception, Lone Cypress has compounded at a 16.9 percent annualized rate compared with just 6.4 percent for the Standard & Poor’s 500 index and 6 percent for the MSCI index.
Lone Pine does not identify which stocks have specifically driven performance this year. But in the second-quarter letter, Mandel and three colleagues explain that these days, stock market value is mostly being created two ways, which they assert that the hedge fund firm’s portfolio “largely reflects.”
They cite “innovation” and “the deployment of capital, using low-interest-rate debt to fund capital investment, share repurchases and acquisitions.” The letter says “the vast majority” of its capital is in these two broad areas.
“We remain committed to Internet-enabled and enabling businesses globally, companies that are reshaping advertising, entertainment, networking, retailing and travel, among other industries,” the letter elaborates. “We are also invested behind innovation in energy, enterprise software and networks, genomics, manufacturing and pharmaceuticals.”
Its investments include what the firm calls “value creators” in companies in consumer products, distribution, health care, media, payments and technology. The firm said also in the letter that it made several changes to the portfolio during the second quarter.
Lone Pine discloses that it exited several long-held positions in Apple, Baidu, Global Logistic Properties and Michael Kors Holdings. At the same time, it increased several existing positions: Charter Communications, Facebook, Illumina, Microsoft and the Williams Cos. Late last week Lone Pine disclosed in a regulatory filing that it owned 5.7 percent of Charter as of July 7.
In the second quarter Lone Pine also established new positions in a number of stocks, including Aetna, Allergan and Charles Schwab Corp.
The top ten positions for Lone Cypress as of June 30 were: The Priceline Group, JD.com, Illumina, Valeant Pharmaceuticals International, Microsoft, Lloyds Banking Group’s TSB Group, Charter, Equinix, Nike and Williams.
Altogether, the fund was 118.5 percent long and 60.8 percent short, for a net 57.7 percent net long exposure.