Tybourne Capital Management’s Covid-19 strategy has helped the hedge fund earn strong gains in the first half.
After posting a sharp loss in the first quarter amid the stock market’s pandemic selloff, the fund laid out a three-part strategy for surviving and thriving in the new Covid-19 world over the next few years.
Already its short-term strategy has paid off handsomely. Hong Kong-based Tybourne posted a 26 percent gain in the second quarter and was up more than 10 percent at the end of June, according to an investor.
This was a sharp reversal from the first quarter, when its hedge fund lost more than 12 percent and its long-only fund lost nearly 21 percent, according to its first-quarter letter to investors. The long-short fund was especially pummeled amid the March selloff, when it lost 17 percent for the month, according to an investor.
Tybourne’s second-quarter surge was apparently led by the types of stocks in the first category of its three-part Covid-19 strategy laid out in its first-quarter letter and earlier reported by Institutional Investor.
In the letter dated April 14, the technology- and internet-driven firm headed by Eashwar Krishnan, who previously spent 11 years at Tiger Cub Stephen Mandel Jr.’s Lone Pine Capital, reminded clients it had strong conviction in its portfolio over a longer period.
“While the next six months remain highly uncertain, we are positioning the portfolio for an eventual recovery in 2021 and beyond — both by not selling certain assets at distressed levels and by revisiting prior investments in secular growth businesses that have fallen back to attractive levels,” it stressed.
It asserted that all of the businesses it owned can survive a protracted downturn and emerge from the Covid-19 crisis on stronger footing.
It said at the time its short exposure was at the lower end of its historical range, its gross exposure was a bit below its typical levels, and net exposure at the upper end of prior periods. “This isn’t reflective of a view on the direction of markets over the near term,” it said in the letter. “It’s simply the result of our assessment of prospective risk-reward across the long and short sides of the portfolio.”
Krishnan called 2021 its “anchor point” for earnings and used that as the basis to organize the portfolio into three categories depending upon a company’s potential near-term, medium-term, or longer-term exposure to Covid-19-related issues and developments.
Tybourne noted in a table that category A will account for nearly half of the portfolio’s 104 percent long exposure, category B will account for a little less than a third, and category C about one quarter.
“We expect category A to recover first, B next and C last,” Krishnan wrote.
Apparently, category A stocks recovered sharply in the second quarter.
Tybourne did not identify specific names of companies for each of the groups of industries in the three categories. But it said category A investments included e-commerce assets, online payment platforms, online entertainment/content, productivity software, and telecom infrastructure.
Its five largest U.S. listed long positions at the end of the first quarter — which accounted for a total of about 43 percent of its U.S. listed equities portfolio — were e-commerce giant Amazon.com, cloud computing software company ServiceNow, Argentinian e-commerce company MercadoLibre, cloud-based software company Salesforce.com, and streaming giant Netflix.
Sure enough, in the second quarter alone, MercadoLibre more than doubled in price, Amazon and ServiceNow each surged about 41 percent, Salesforce.com rose about 30 percent, and Netflix rose 21 percent.
Four of its top-ten holdings were also newly established in the first quarter or shortly afterward: payments giant PayPal Holdings, biopharma specialist Zentalis Pharmaceuticals, casual dining giant Chipotle Mexican Grill, and Chewy, the e-commerce company specializing in pet-related needs.
Tybourne was an investor in Zentalis before it went public in early April, according to the drug company’s prospectus.
