| Hound Partners New York office building (Photo Credit: Wikimedia Commons/Americasroof). |
Hound Partners founder Jonathan Auerbach is not heavily depending on hot, popular hedge fund stocks, a position that may turn in its favor after the sell-off seen Friday in some technology shares.
It’s been a very strong year for most long-short hedge funds with ties to Julian Robertson Jr. Many are producing high teens and low 20 percent gains after most suffered 2016 losses, in some cases in the double-digits.
Hound, a high-profile Tiger descendant that last year lost money but has seen relatively modest gains in 2017, is headed by Auerbach, who was seeded by Robertson in 2004. The firm — which posted single-digit losses in both 2015 and 2016 — was barely in the black this year until May, when it posted a 4.6 percent gain that propelled the hedge fund to a 5.7 percent return for the year.
Perhaps one reason Hound is lagging its Tiger relatives is because it is not as fully loaded in the kinds of media and internet stocks that are leading the stock market this year. Such stocks have also been among the most popular with hedge funds.
But if Friday’s selloff in so-called FANG stocks — Facebook, Amazon, Netflix and Google’s parent company, Alphabet — turns into a long-feared rout, Hound may wind up enjoying the last laugh, or at least some sort of vindication.
In fact, in the past 12 months through May, the firm has not exactly performed shabbily. Hound is up 18.3 percent versus 16 percent for the S&P 500, partly because of the money it made on its shorts last year.
Hound has not avoided the popular hedge fund stocks altogether, though.
In the first quarter the hedge fund firm took a sizable stake in one of Alphabet’s share classes, making the stock the hedge fund firm’s sixth largest U.S. long. It also took an initial stake in Facebook that resulted in the stock becoming its eleventh largest U.S. long. No doubt their performance this year has helped Hound.
Still, Hound’s five largest longs—which accounted for 45 percent of U.S. long assets — were an eclectic collection of companies distinctly not related to the internet, the new media or e-commerce, the kinds of stocks that have been propelling the top performers. Three of the five positions were established in 2016, and three are up for the year, though not at eye-popping rates.
For example, its largest long is Hilton Worldwide Holdings, the hotel giant. Hound, which initially invested in the stock in the second quarter of 2016 is also the tenth largest shareholder.
At the beginning of the year, Hilton spun off its real estate and timeshare businesses into two separate businesses. Since then, Hilton’s stock is up about 13 percent.
Tesoro Petroleum, the independent petroleum company Hound initially bought in the second quarter of 2013, is the firm’s third largest long. The volatile stock is up more than 50 percent since the firm began building its position, and about 5 percent this year. It declined sharply earlier in the year, bottoming around mid-April.
Hound is the fourth largest shareholder while other top investors include D.E. Shaw, Point72 Asset Management and Maverick Capital.
Auerbach’s hedge fund firm is the second largest shareholder of Credit Acceptance Corp., the auto finance giant that’s up about 7 percent this year. It has risen much more than that since the third quarter of 2016, when Hound started buying the stock.
Meanwhile, two of Hound’s top five longs are essentially flat for the year: Spirit Aerosystems Holdings and Spirit Aerosystems Holdings.
Spirit Aerosystems, a maker of large commercial aircraft structures is down less than 1 percent. It is Hound’s second largest long. The hedge fund, which initially bought shares in early 2014, is also the company’s second largest shareholder after Vanguard Group.
ServiceMaster, the disaster clean-up company, is Hound’s fourth largest long. The stock is roughly flat for the year.
