Blue Ridge Capital's 13F (John A. Griffin) ~ market folly

Wednesday, May 21, 2008

Blue Ridge Capital's 13F (John A. Griffin)

(Note: Before reading this update, make sure you check out the preface to the series I'm doing on Hedge Fund 13F's HERE.)

Alright so now we're cruising through these hedge funds having already covered Steven Mandel's Lone Pine Capital and Boone Pickens' BP Capital. Next up, we have one of my personal favorites: Blue Ridge Capital ran by John A. Griffin. Now, Griffin is similar to Mandel/Lone Pine in that he too is Tiger Cub aka pupil of Julian Robertson at Tiger Management. However, there is one difference between Mandel and Griffin; Griffin was Julian Robertson's right hand man, while Mandel was merely an analyst (right, "merely," look where he is now haha). So, needless to say, the dude knows his stuff. Blue Ridge seeks absolute returns by investing in companies who quite simply dominate and shorting the companies who have fundamental problems. And, right off the bat that presents us with a bit of a problem in terms of analyzing 13F's. 13F's don't show short positions, they show long positions (unless the firm is short through puts, which we *can* see). So, the inherent problem with analyzing Blue Ridge (or any fund for that matter) is that we can't see the other side of their portfolio. But, this is increasingly important for Blue Ridge simply due to Griffin's investment strategy and the fact that his long positions could in essence only represent half of the portfolio. Now, I use that loosely because there's no way for me to know exactly how much of his portfolio is short. But, I do know that both Griffin and Lee Ainslie over at Maverick Capital (research on him coming later this week) like to effectively hedge with a balance of both long and short positions (like a TRUE hedge fund... not like some of these crazy funds these days with no true hedging). Here's the thing, they don't do pairs trades, so don't classify it as that. I remember specifically being told by representatives at Maverick that they don't pairs trade, even though a respective long and short could be in the same sector or sub-sector. So, make that distinction clear. But, we'll work with what we've got (and believe me, it's still a lot of solid info). Onto the 13F's!

The following is Blue Ridge Capital's current holdings as of March 31st 2008 as released in their most recent 13F filing with the SEC. I've compared the positions in this most recent 13F to last quarter's 13F and here's what the breakdown looks like:

New Positions:(in no particular order)
Apple (AAPL) 1,150,000 shares
Burlington Northern (BNI) 700,000 shares
Eagle Materials (EXP) 1,965,000 shares
Echostar (SATS) 1,906,000 shares
Federal Home Loan Mortgage Corp (FRE) 500,000 shares
Federal National Mortgage Assoc (FNM) 480,000 shares
Fidelity National Information (FIS) 1,470,000 shares
First American Corp California (FAF) 1,050,000 shares
Google (GOOG) 493,000 shares
MBIA (MBI) 2,500,000 shares
Millipore (MIL) 2,700,000 shares
Office Depot (ODP) 3,400,000 shares
Research in Motion (RIMM) 600,000 shares
SLM Corp (SLM) 1,130,000 shares
St. Joe Co (JOE) 645,000 shares
Wyeth (WYE) 3,500,000 shares

Added to:
American Express (AXP) increased by 167% (5,393,200 more shares)
Berkshire Hathaway (BRK.A) increased by 13% (98 more shares)
Compton Petroleum (CMZ) increased by 15.5% (890,400 more shares)
Fairfax Financial (FFH) increased by 50% (63,315 more shares)
First Marblehead (FMD) increased by 549%, no that's not a typo... 549% (1,154,500 more shares)
Fomento Economico Mexicano (FMX) increased by 103% (1,050,000 more shares)
Grupo Aeroportuario Del Paci S.A.B (PAC) increased by 53% (1,225,700 more shares)
Martin Marietta Materials (MLM) increased by 17.5% (235,800 more shares)
Netflix (NFLX) increased by 210%, not a typo either (1,377,700 more shares)
Packaging Corp of America (PKG) increased by 30% (958,264 more shares)
Starbucks (SBUX) increased by 19% (1,150,000 more shares)

Reduced Positions:
Broadridge Financial Solutions (BR) decreased by 2.2% (sold 161,501 shares)
Coach (COH) decreased by 38% (sold 1,440,000 shares)
Discovery Holdings (DISCA) decreased by 4.6% (sold 348,200 shares)
Formfactor (FORM) decreased by 25% (sold 295,000 shares)
Smurfit Stone (SSCC) decreased by 38% (sold 881,099 shares)

Removed Positions:
Positions Blue Ridge sold out of completely
Baidu (BIDU)
Domtar (UFS)
FedEx (FDX)
Gafisa (GFA)
Grace WR (GRA)
ishares TR Puts (IFGL Puts)
Level 3 Comm (LVLT)
Macys (M)
Mastercard (MA)
Microsoft (MSFT)
Microsoft Calls (MSFT Calls)
Novastar Financial (NOVS)
Nutrisystem (NTRI)
Pier 1 Imports (PIR)
Sears (SHLD)
Sterlite (SLT)
Teekay (TK)

Positions with no change:
America Movil (AMX)
American Express Calls (AXP Calls)
Corus Bank (CORS)
Covanta Holdings (CVA)
Crocs (CROX)
Elong (LONG)
Evergreen Energy (EEE)
Gold Reserve (GRZ)
Greenlight RE (GLRE)
Grupo Televisa (TV)
Indymac Bank (IMB)
Perfect World (PWRD)
Charles Schwab (SCHW)
Target (TGT)
Thermo Fisher Scientific (TMO)
Walmart (WMT)
Washington Mutual Puts (WM Puts)

Top 10 Holdings by % of Portfolio:
1. AXP (Top Holding)
2. CVA
4. MIL
5. TV
8. PAC
9. AMX


Breakdown: Alright lots to cover here. First major thing I noticed was Griffin selling out of MA entirely and seemingly replacing it with AXP. He beefed up his position in AXP by 167% and brought it all the way to the fund's top holding. So, clearly they wanted some credit risk to go along with the transaction processing. AXP offers the play on global transition from cash to plastic like MA and V, but they offer the added benefit/detriment (depending on how you look at it) of exposing themselves to credit risk as well. Many would argue that AXP has higher credit quality than that of say a COF or other banks of the like. But, my favorite way to play credit cards is still MA straight up. I can definitely see the play on AXP as well and don't get me wrong I like it, but I'm a big advocate of MA for pure transaction processing. So, considering numerous other Tiger Cubs (ex-Tiger Management funds) still hold MA, it was interesting to see Griffin be the sole person to completely sell off MA. Others merely took profits while he completely swapped out in favor of AXP. It will be very interesting come next quarter to see if any other funds in the Tiger family (Maverick, Lone Pine, Viking) added to AXP following Griffin and Blue Ridge's lead.

Second, just like Lone Pine, we saw Blue Ridge load up on tech, especially the titans AAPL GOOG and RIMM. Obviously all the old Tiger Cubs still keep in touch and share ideas and they all saw screaming opportunity in these names when they sold off hard. Griffin just started his position in GOOG and already brought it up to the 3rd largest fund holding, so he really loaded up. He also just started his position in AAPL and brought it to the 6th largest fund holding. So, as you can see, Griffin really likes these names and now is laughing at everyone who was selling at the lows while he was scooping those shares up in mass (both GOOG and AAPL up significantly since his pick up). So I expect him to obviously take some profits in these names come next round of 13F's, but I'm sure he will still hold a core position.

Thirdly, I noticed the Latin American theme going on. A lot of the ex-Tiger Management guys have been in AMX for a while so that was no surprise to see that still as a top 10 fund holding. However, what I noticed was Griffin slowly but surely building positions in other names. He added to FMX and increased his stake by 103%. He added to PAC by 53% and brought it to the 8th largest fund holding. And, not to mention, he's still got his big chunk of TV sitting as the 5th largest holding of the fund. So, Latin America is a big part of Blue Ridge's portfolio. And, he covers all industries. FMX with beverages, TV with television/entertainment, and PAC with airport service. (For the record, I love FMX and have for a while. I'll definitely be looking more in depth at those other two names.) So, overall so far we've got 2 themes, technology and Latin America.

The next major thing that quite simply confused me was Griffin adding FRE FNM FAF MBI as new positions. I'm not sure if he was screwing around with Fannie and Freddie and bond insurers because he was trading them or if he saw something that the rest of us don't (that wouldn't surprise me either). But, I've got to say that this move puzzled the hell out of me as I wouldn't touch any of those things with a 10 foot pole. But, it's there and he added them so take it for what its worth, but I have no idea how to explain that to you all. He also beefed up his position in FMD, an education lender by a whopping 549%. So, he wasn't messing around with these names, he was picking up shares in mass. Again, I'm not going to try and pretend to explain these moves because frankly bond insurance and the whole fannie/freddie complex makes no sense to me. I don't necessarily want to sit around reading hundreds of thousands of pages like Bill Ackman did in order to better understand the bond insurers, etc. So, there's the information, do with it what you will haha. But I'm not touching any of them.

This next addition really got me interested. In all the major funds I follow I've never seen this company in any of their portfolios: Millipore (MIL). And, Blue Ridge came in last quarter and started a position in it... and a massive one at that. Its the fund's 4th largest holding and it came out of nowhere. Millipore is a life science company and honestly I thought about adding it solely because Griffin came in and added it with such conviction. I'm doing more research on it now but definitely keep it on your radar. Griffin already has a solid maintained position in Thermo Fisher (TMO) to play the lab equipment side of things. I would not at all be surprised to see it in other funds' portfolios here come next quarter. Blue Ridge added a pretty massive position in this thing and I thought it deserved its own paragraph worth of mention.

Lastly, I just want to tie up a few odds and ends that are worth mentioning. Blue Ridge, much like Lone Pine, seemed to be closing out a lot of retail positions (reducing COH by 38%, removing M, SHLD, and PIR completely). But, what struck me as odd was that Griffin sold out of all these retail names, and then goes and starts a position in Office Depot (ODP). So, I was confused by that for sure. Maybe he saw some compelling valuations in ODP I'm not sure. Ex-Tiger buddy Lee Ainslie and Maverick Capital have a large position in OfficeMax (OMX) not the Depot, so that made me even more confused, as usually you will see similarities between their portfolios. But, Blue Ridge picked up some shares of the rival. I don't like either of these companies to be frank. ODP has a lot less debt, but is also trading at slightly richer valuations than OMX. Whaaaatever. Also, I noticed Griffin added to his SBUX a little bit, obviously on the news that Schulz would be back to shape things up in that slowing mammoth of a company. Next, I thought it was worth mentioning that Blue Ridge started a position in St Joe Co, a real estate development company. First off you've got Lone Pine starting a position in CB Richard Ellis (CBG - commercial real estate), and now you've got buddy pal Blue Ridge starting a position in JOE. Veeeery interesting. So, once again, something to watch in the coming months to see if other ex-Tiger funds start adding plays similar to these (or the exact same names). Again, I'm not touching these names as I think I can get much better return for my money in other sectors. But, then again, these guys are the hedge fund managers and obviously are a lot smarter than I. Next, I just want to point out that Blue Ridge sold out completely of their Nutrisystem (NTRI) position and at the same time last quarter Lone Pine added quite a large short position in NTRI through puts. So, if I was Mandel I'd probably have called up Griffin and said "hey yo I'm gonna short the shit out of NTRI so you might wanna wrap that position up... mmmmkay thanks bye." Ok, speaking of wrapping up, I want to highlight the fact that Blue Ridge has a measly 1 put position listed in their entire 13F... yup, just 1. Washington Mutual (WM) Puts. So, we get our tiny glimpse at what Griffin is on the short side of things with. Again, remember he is undoubtedly short a few/a lot of names in the fund but we don't get to see those on 13Fs. The only things we can see are long equity positions, call positions, and put positions. So, as I assumed coming into this: he is just straight up shorting rather than using puts. So, everybody go short the crap out of WM. Oh, wait, its already been driven down hard. Enter sad face here. And that's a wrap, thanks for reading.

My personal favorites out of Lone Pine's Portfolio:

Most interesting move(s):
1. Adding a boatload of technology and Latin American names
2. Adding Fannie/Freddie/MBIA/First Marblehead ........... ?!?!
3. Exchanging MA in favor of AXP by a lot. AXP = Fund's largest holding now
4. Adding Millipore (MIL) out of nowhere... and with conviction
5. Selling lots of retailers and yet starting a stake in Office Depot. what?!?

Note: Of their positions, I'm long AMX AAPL FMX WMT TMO
And names I will most likely be long after I finish research: MIL TV PAC

Tune in tomorrow when I examine (yet) another protege of Julian Robertson & the Tiger Management gang: Lee Ainslie's Maverick Capital.


Jeffrey McLarty said...

Amazing work.

Hats off to you!

My JAW DROPPED when I saw MIL added in #4th holding. When I went through that Water ETF, it was in PHO. First time I think I ever really looked at the company, I think I made a note to myself, "I'm very interested in this stock, I'll come back to it later" because it wasn't a 'Water' Stock. But now, I'm really going take a big look at it.

Curious what you think.

Jeffrey McLarty said...

oh, BTW more wierd coincidences/great minds thinking alike - I also like MA better than V - but I own both.

madhatter said...

i'm finishing up my research on MIL today but so far I like what I see. I could have sworn I @ msg'd you on twitter a while back about MIL when you were posting your water research. maybe i'm losing my mind haha.

Ya I'll let you know though once I've really read through the rest of their stuff to give the final decision but so far it looks great

Jeff said...

I was wondering why he sold out of GFA completely. I can understand it on the sharp run up to 50, but would he have dumped the entire thing all at once and not re-enter at lower prices? Seems counter intuitive to the latin america theme.

I also think there is some stuff going on with "medical related" stocks. I know cramer pumps all things diagnostic, and as a long term theme, it seems sound. But I think until the presidential race nears completion, we won't see strength in the sector.

Are you noticing any trends in that area?

Jeff said...

btw, do you have an option somewhere on feedburner for an email subscription? I'm old school that way.

madhatter said...

rmjeff, does the link at the very top of the homepage not work for feedburner in terms of email addresses? i literally just set it up a few days ago and i'm new to their setup so trying to work things out. do i need to enable something on the feedburner account? i'm a n00b in terms of feeds.

on GFA, keep in mind these 13F's are holdings as of March 31st. So, since then, there's a big gap of 1.5 months, so he may very well have gotten into it again around 34 or so... who knows. but, it looks like he sold it on the spike around late march around $40 or so... but there's no real way for us to know that.

as for medical yea i'm definitely keeping an eye on things in terms of the presidential outcome. i'm not really dabbling in much yet just because i want to get a better feel as to who i logically think will win the race. right now i have a feeling obama will, but that could change a few months from now. i've been in TMO for a while after noticing it being accumulated by hedge funds over the past year, and am now obviously thinking about getting into MIL. those are only "medical" in the sense of laboratory testing though. I then play more on the biopharma side of things with GILD and BIIB... very small positions though just for diversification. what were your thoughts in that area?

Jeff said...

if it does work for emails, I dont intuitively see an option where I can enter it. I think you might need a different widget.

As for all things health care, alot of the related industries seem to just act poorly, and I'm not sure why. Either they miss numbers, or some terrible news comes out about their product.

I havent been very successful in this area recently, so im staying out. (do have a bit of ISRG) But it makes a lot of sense, as part of a long term thesis. People get old and will pay up for medical services. And people in the growing middle class will also pay more. So, while there are definately going to be bumps down the road, I cant foresee anything changing that. But how to play the sector? Diagnostics? Clinical trial labs, etc? Both seem good, but that doesnt change the fact that these areas just havent acted so well. (at least where I look) So, im tempted to view them as trades, even tho they have a good long term thesis, that isnt tied to commodities. But perhaps people just arent old enough yet... Anyways, this is a sector I'm very interested, but not sure how to 'invest' in it.

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