Viking Global Investors made several major changes to its biggest holdings in the second quarter.
This is significant since the firm, headed by Tiger Cub O. Andreas Halvorsen, generally concentrates a substantial slice of its assets among its ten biggest long positions.
In the second quarter, the hedge fund firm, which manages three funds, established sizable new stakes in General Electric and DowDuPont. GE instantly became Viking’s fifth-biggest long holding, while DowDuPont is now the eighth-biggest long.
In addition, Viking nearly doubled its stake in United Technologies, catapulting the stock to its No. 1 long position, up from sixth at the end of the first quarter. Interestingly, all three stocks are currently targets of high-profile activist hedge funds.
At the same time, Viking liquidated its large position in embattled banking giant Wells Fargo.
The moves are intriguing for a firm that has aggressively embraced technology and internet stocks. At the end of the second quarter just Facebook, Microsoft and Alphabet — its second, third and seventh-biggest longs respectively — represent these sectors among its top-ten holdings. By comparison, at year-end five of the nine biggest U.S. longs were tech, internet, or new media companies.
As Institutional Investor earlier reported, Viking Global Equities, the firm’s long-short fund, rose 5 percent in the second quarter and returned 4.8 percent for the first half of the year. Its Viking Long Fund gained 4.7 percent in the second quarter and 3.2 percent for the first half.
Back in May United Technologies became an activist target of both Dan Loeb’s Third Point and Bill Ackman’s Pershing Square Capital Management. Both hedge fund managers called on the conglomerate to break into three separate companies.
At the time, Ackman lamented that UT’s valuation “is significantly below our estimate of the company’s underlying value based on the overall quality and future earnings growth potential of UTX’s operating subsidiaries.”
Wrote Loeb in Third Point’s first-quarter letter, “UTC’s management has acknowledged the disconnect between the company’s intrinsic value and share price but it seems less open to a three‐way split solution than shareholders might expect.”
The stock is trading around $130, close to its all-time high.
GE is the third-biggest position of activist firm Trian Fund Management. Last October it secured a seat on the conglomerate’s board of directors.
In June the stock was kicked out of the prestigious Dow Jones Industrial Average of 30 stocks. The stock is currently trading a little above $12, its lowest price in nearly a decade.
DowDuPont is the fourth-biggest long of Third Point. In February the company announced it would break into three separate companies in 2019. The stock is trading in the mid-60s, down from its high of around $77 in late January.
Meanwhile, Viking liquidated its stake in banking giant Wells Fargo, which it initially invested in during the second quarter of 2017.
Wells Fargo has been embroiled in a variety of legal issues. Earlier this year, the bank was sanctioned by the Federal Reserve Board for “widespread consumer abuses and compliance breakdowns.”
In April it agreed to pay a $1 billion fine as part of a settlement with the Consumer Financial Protection Bureau stemming from the way it administered a mandatory insurance program related to its auto loans and how it charged certain borrowers for mortgage interest rate-lock extensions. In May it admitted to incorrectly keeping fee rebates from mutual fund managers employed by the Chattanooga Fire and Police Pension Fund.
Earlier this month, Wells Fargo agreed to pay $2.09 billion in penalties to settle claims that it misrepresented the quality of residential mortgage loans that it originated and sold to investors prior to the 2008 financial crisis.
