An alumnus of Daniel Benton’s Andor Capital Management is well on his way toward distinguishing himself as a successful technology investor in his own right as he winds down the second year managing his own fund.
Nicholas Romano’s AO Asset Management has posted a gain of 10.1 percent this year in its AO Technology Fund through November after posting a 7.9 percent gain in 2014, when Romano launched his New York–based, technology-oriented fund.
Even more remarkable is the minimal loss Romano’s fund suffered during the market’s summer swoon, which mercilessly took down many high-flying tech, Internet and health care stocks. The fund dropped only 1.6 percent in August and 0.6 percent in September. (The firm declined to comment for this story.)
Romano has been involved with tech stocks for most of his career. He worked at Fidelity Investments from 1995 to 1998, serving as a technology analyst and portfolio manager of the Fidelity Advisor Developing Communications Fund. He then moved over to Pequot Capital Management, working closely with Daniel Benton, and joined him when Benton split off to launch Andor Capital.
Romano left the firm in 2003 amid losses at several of the firm’s funds. After taking several years off from the investment business for personal reasons, Romano rejoined Andor as a principal when Benton relaunched his firm in 2011, serving as a leader of hardware and select software and Internet sectors. Romano then left and launched AO at the beginning of 2014. Today the firm has $605 million under management.
AO says it seeks technology, media and telecommunications companies — known as TMT — and takes at least a one-year time horizon. Its short positions are intended to generate profits, not provide a hedge. The fund is fairly concentrated, with the top ten positions accounting for between 50 percent and 60 percent of its assets.
It is also roughly 19 percent net long — down from an average of 23 percent — after the management team sharply reduced the fund’s long exposure following a trip to China in May. Romano and his team travel extensively throughout the year, speaking with companies and their competitors and suppliers. On that trip they discovered that business was not as strong in China as widely perceived at the time. So when Romano returned he started to cut back on AO’s long book and shorted China.
By the end of the third quarter, the firm had sliced the fund’s U.S. equity long book by about 17 percent, to $404 million, from $491 million the prior quarter. At the end of the second quarter, the firm bailed out of several major positions, including Vipshop Holdings, a Chinese online discount apparel retailer, and social media giant Twitter.
In the third quarter it liquidated ten positions, including previous major holdings, such as Chinese e-commerce giant JD.com, Israeli semiconductor company Mellanox Technologies and wireless infrastructure provider CommScope Holding Co.
Most of the portfolio’s gains this year have come from media, Internet advertising, e-commerce and hardware stocks. At the end of November, virtually all of AO’s long exposure and all of its net exposure was in North America. In Europe its entire 6.9 percent exposure was on the short side, while China had very little presence on either side of the ledger.
The two subsectors with the largest long as well as net exposures are communications infrastructure and Internet advertising. Of the dozen sectors detailed by the hedge fund, software infrastructure and hardware have the largest net short exposure.
In the end, however, three of the fund’s five largest longs are popular, crowded tech trades: Alphabet, its largest position; Amazon.com; and Facebook. The other two are Salesforce.com and Juniper Networks.
