Easy come, easy go.
Tiger Global Management’s hedge funds gave back in January all the large gains they worked hard to generate in the fourth quarter of last year.
The New York investment firm founded by Chase Coleman lost about 14 percent last month in the Tiger Global fund and its offshore equivalent, roughly what it made over the previous three months. (The Wall Street Journal first reported January’s results.)
What caused the one-month plunge? Mostly, the same stocks that had earlier fueled its year-end surge.The firm’s fourth-quarter letter and December’s exposure report obtained by Alpha provides a more detailed look into how the funds made their money at the end of the year and how they were positioned as they entered 2016.
In its year-end letter dated January 28, Tiger Global acknowledged that it got off “on a negative note” in 2016, stressing that its longs had fallen “considerably” while its shorts did not go down nearly enough. It also said the firm’s net exposure was roughly 25 percent and gross exposure was around 180 percent, stressing that its “overall liquidity is meaningfully higher than in the recent year.”
That said, keep in mind that earlier in the year the firm told clients that to better focus and “simplify” its business it was emphasizing areas it believes its research “can yield a meaningful competitive advantage.” This meant that “several of the most prominent themes” in the long portfolio, such as Internet, software and technology companies, will likely increase “meaningfully in importance over time.”
The firm also said it had increased its concentration on its favorite ideas.This change was reflected in its portfolio at year-end, as Tiger Global’s top-10 longs accounted for 93.1 percent of equity. Those longs were closer to 72 percent in late 2014.This strategy paid off well in the fourth quarter when the fund was up 11.5 percent net of fees, enabling it to finish the year up 6.8 percent, driven by big gains from Amazon.com, JD.com and Netflix.
In the second half of 2015, Tiger Global had added to its Amazon and Netflix positions. Meanwhile, it was the second-largest shareholder of JD.com and the third-largest shareholder of Netflix. By year-end, media and Internet stocks dominated the fund’s portfolio and performance, accounting for about 85 percent of its public equity performance last year.However, these were the same stocks that cost the fund in January, when Amazon fell 13 percent, JD.com, 19 percent and Netflix, 20 percent.
At year-end, Tiger Global’s net-long exposure to media and Internet—a broad group which are lumped together—was more than 73 percent. The second-biggest net exposure was to financials, only 8.2 percent.
Drilling down even further, Tiger Global says its largest long theme entering 2015 was the consumer Internet, followed by software, financial technology and retail and consumer stocks. However, Tiger Global has also been heavily shorting retail and consumer stocks. At the end of the fourth quarter, the fund was just 8 percent long and 29.8 percent short this group of stocks.
“Many offline retailers continue to have high valuations, poor underlying fundamentals, and risky business models, especially considering how buying patterns are evolving in younger demographics,” the firm’s year-end letter states.
Altogether, shorts accounted for 5 percentage points of the fund’s 12 percent gain in its public-equity portfolio in 2015, which does not include gains and losses in other smaller strategies as well as fees and expenses.Tiger Global also made money last year from shorting technology stocks even as it made big bucks from select Internet stocks. And although it was net-long the sector entering the New Year, it still included a healthy 9.2 percent short exposure to the group.
“In technology, broad swathes of the industry are being commoditized by the cloud and a number of companies are poorly positioned with respect to these changes,” the firm writes in its year-end letter.
In general, Tiger Global says it is shorting companies it believes will become less relevant over time. It is currently concentrated on retail, technology “and a myriad of other industries and companies we believe we know well.”
