Maverick Capital's 13F (Lee Ainslie) ~ market folly

Thursday, May 29, 2008

Maverick Capital's 13F (Lee Ainslie)

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

Lee Ainslie started Maverick Capital back in 1993 with $38 million. Nowadays, the fund is worth $10 billion, so you can already see the track record he's established. Ainslie, like many of the other fund managers I've profiled, has a background rooted in learning from legendary great Julian Robertson at Tiger Management. So, due to the fact that these proteges learned from the best and have had great success running their own funds, I continually try to find a reason NOT to follow these funds. And, needless to say I'm never successful. Time to learn from the greats! Some of my contacts over at Maverick have explained to me that their strategy is straight up stock picking, both long and short. They made it clear though, that they do not employ pairs trades. Although, some of their long/short setups might be in the same sector. They try to hedge their positions like a true hedge fund by picking out the shining stars in certain sectors, as well as identifying the pieces of garbage. Now, of course, this presents us with a problem in that the 13F filings only show long positions (unless they're holding puts on a name, we can see those). So, a good amount of Maverick's portfolio (the entire short side) is unbeknownst to us, because they have reported zero put positions. But, let's look on the bright side in that we can see all their long positions. Maverick uses a value approach (obviously learned from Julian) and one of their most popular metrics is finding companies and comparing their enterprise value to sustainable free cash flow. So, now that we've got a little background on Maverick, let's see what they were up to. Rumor has it that they had a poor start to the year, and they were definitely out switching things up in mass in their portfolio.

New Positions: (in no particular order)
American Capital Strategies (ACAS) 581,590 shares
Bankrate (RATE) 100,100 shares
BonTon Stores (BONT) 57,000 shares
BPW Acquisitions (BPW) 2,000,000 shares
Citrix Systems (CTXS) 4,007,280 shares
Crocs (CROX) 515,389 shares
Discovery Holdings (DISCA) 6,063,297 shares
Dish Network (DISH) 5,977,630 shares
Infinera (INFN) 2,524,117 shares
JPMorgan Chase (JPM) 4,745,330 shares
Liberty Media Corp (LMDIA) 5,726,736 shares
Loews (LTR) 2,297,358 shares
Nordstrom (JWN) 4,386,874 shares
Sears (SHLD) 848,724 shares
Starbucks (SBUX) 12,512,559 shares
Wyeth (WYE) 4,282,850 shares

Added to:
Advanced Micro Devices (AMD) increased by 12% (3,956,220 more shares)
Amylin (AMLN) increased by 28% (544,550 more shares)
Apple (AAPL) increased by 3.6% (80,965 more shares)
Autozone (AZO) increased by 99.8% (1,005,200 more shares)
Avon Products (AVP) increased by 82% (2,863,320 more shares)
Bank NY Mellon (BK) increased by 24% (1,174,155 more shares)
Baxter (BAX) increased by 38.5% (930,840 more shares)
Burlington Northern (BNI) increased by 151% (1,007,490 more shares)
Cardinal Health (CAH) increased by 12% (350,230 more shares)
China Nepstar Chain Drugstores (NPD) increased by 68.5% (960,605 more shares)
Cognizant (CTSH) increased by 3.6% (181,168 more shares)
Covidien (COV) increased by 57% (1,483,210 more shares)
Cypress Bioscience (CYPB) increased by 123% (1,458,064 more shares)
Direct TV (DTV) increased by 25% (1,438,140 more shares)
Fidelity National Info (FIS) increased by 41% (1,286,091 more shares)
Google (GOOG) increased by 49% (98,722 more shares)
Hanes Brands (HBI) increased by 37% (896,563 more shares)
Home Inns & Hotel Mgmt (HMIN) increased by 28% (633,753 more shares)
Leap Wireless (LEAP) increased by 19.5% (217,011 more shares)
Lumber Liquidators (LL) increased by 7% (147,720 more shares)
Marsh & McLennan (MMC) increased by 13.6% (888,850 more shares)
MetroPCS (PCS) increased by 32% (1,032,857 more shares)
Mylan (MYL) increased by 52% (3,463,006 more shares)
Nucor (NUE) increased by 19% (307,337 more shares)
Research in Motion (RIMM) increased by 179% (2,174,226 more shares)
Resmed (RMD) increased by 11% (186,168 more shares)
Salesforce (CRM) increased by 63% (818,010 more shares)
Sandisk (SNDK) increased by 7% (399,180 more shares)
Textron (TXT) increased by 31% (988,240 more shares)
UnderArmour (UA) increased by 81% (1,622,662 more shares)
United Health (UNH) increased by 31% (832,673 more shares)
VMWare (VMW) increased by 5% (60,000 more shares)
Zimmer Holdings (ZMH) increased by 36% (623,610 more shares)

Reduced Positions:
America Movil (AMX) reduced by 34.5% (1,907,040 less shares)
Berkshire Hathaway A (BRK.A) reduced by 43.5% (635 less shares)
Berkshire Hathaway B (BRK.B) reduced by 22.8% (3,687 less shares)
Corcept (CORT) reduced by 8.5% (128,480 less shares)
Cumulus Media (CMLS) reduced by 21% (526,311 less shares)
Gamestop (GME) reduced by 14.6% (676,378 less shares)
Genentech (DNA) reduced by 9% (150,290 less shares)
Gmarket (GMKT) reduced by 56% (308,037 less shares)
Harmonic (HLIT) reduced by 10% (574,361 less shares)
Lexmark (LXK) reduced by 49% (2,161,513 less shares)
Marvell Tech (MRVL) reduced by 3% (551,916 less shares)
Monsanto (MON) reduced by 11% (190,570 less shares)
Office Max (OMX) reduced by 22% (1,464,249 less shares)
Potash (POT) reduced by 11% (123,790 less shares)
Qualcomm (QCOM) reduced by 37% (3,851,237 less shares)
Raytheon (RTN) reduced by 19% (861,290 less shares)
Suntrust (STI) reduced by 54% (1,194,028 less shares)
ThermoFisher Scientific (TMO) reduced by 33% (1,782,100 less shares)

Removed Positions:
Positions Maverick sold out of completely
Altria (MO)
Atheros Comm (ATHR)
Biogen Idec (BIIB)
Burger King (BKC)
Crown Castle (CCI)
CVS Caremark (CVS)
Digital River (DRIV)
Echostar (SATS)
Five Star Quality Care (FVE)
Guess (GES)
Healthnet (HNT)
Macys (M)
Men's Warehouse (MW)
Merck (MRK)
Omnicare (OCR)
Wellpoint (WLP)
Wyndham (WYN)
Yahoo (YHOO)

Positions with no change:
Bluefly (BFLY)
Cnet (CNET)
First Advantage Corp (FADV)
First Marblehead (FMD)
Gilead (GILD)
Move Inc (MOVE)
Newstar Financial (NEWS)
Palm (PALM)
Trubion Pharma (TRBN)
Ultra Clean Holdings (UCTT)
Vivus (VVUS)
Western Union (WU)

Top 10 Holdings by % of Portfolio:
1. RIMM (Top holding)
4. AVP
5. BK
7. GME
8. RTN
9. AMX
10. TXT


Breakdown: Alright, so right out of the gate the first thing I noticed was Maverick's heavy tech weighting, much like fellow Tiger Cub funds Lone Pine and Blue Ridge. Maverick's top 3 holdings are all tech in RIMM AAPL and QCOM. And, Maverick even reduced their QCOM position by almost 40% and its still the #3 holding. I'm sure given the big run tech has had lately (especially AAPL), that Maverick will show some profit taking next quarter in the next round of 13Fs. They just clearly loaded up on tech on the big dips, and they've profited quite handsomely from that play it seems. Ainslie added to Avon Products (AVP) by 82% and brought it up to the #4 fund holding, which is a strong move. Ainslie also added heavily to Autozone, increasing it by almost 100%, and bringing it to a notable 11th largest fund holding. Also, he added Bank New York Mellon by 24% and it sits at the fund's 5th largest holding. Maverick clearly wants to play the financial space through BK and then also JPM, which they also added as a brand new holding this go round. And, they added in mass too, with a whopping 4.7 million shares. Take a closer look at those two if you want financials exposure. Ainslie also started a pretty decent sized position in Citrix, who specialize in IT and the such. I would say they were trying to play the VMWare trade through the backdoor, but they already have VMW in the fund as well. Another new addition to the portfolio this go round was Wyeth, which they added a strong 4.2 million shares of. Also, it seems like Ainslie added SBUX as well, buying on the dip when Schulz came back. We'll see if they still hold those shares in the next quarter.

In terms of further adding to positions they already owned, Maverick really loaded up on BNI, a whopping 151%. And, keep in mind, that stock has already made a monster move, so they weren't exactly getting those shares on the cheap. They clearly believe the move in the rails has more juice. They also added in mass to Cypres Bioscience by 123%, showing conviction in that buy as well. One play that they continue to quietly amass is satellite plays. DTV they increased by 25% and they've been building a position over time. They also started a brand new position in Dish Network, so they've got all their bases covered. I'll definitely be checking into that theme further as Maverick seems to firmly believe in it, despite a recession. They also added GOOG to their tech basket by 41%, but its still *not* a top 10 holding in the fund. Ainslie clearly prefers hardware in tech. They also continue to add to Mylan quarter after quarter (increased 52% this quarter), so that's one I'm keeping my eye on as well. One move I'm not so sure of is them adding to UA by 81%. I think this stock has real issues as they've lost their "mojo" after first storming onto the scene. We'll see how that plays out and see if they add even more shares in the quarters to come. Half the point in tracking these 13f's is to see where these funds are accumulating shares on a quarterly basis, so we can play catch-up with them and load up on positions ourselves that these funds strongly believe in. Some stocks they buy and sell and they are in and out. Others though, you can see them slowly adding each quarter, building core positions. Those are the ones you want to look for. Also, keep an eye out for sector trends (such as satellite tv in Maverick's case). They are clearly buying up all satellite players and must believe strongly in that space.

Turning to the reduced positions, I noticed that they've reduced their stakes in both BRK.A and BRK.B. Clearly they aren't seeing as much value in Buffett anymore. Or, maybe they were just freeing up cash. As, after all, if the rumors of Maverick's poor start to the year were true, then they needed to free up some cash to re-tool their portfolio. I mentioned earlier that they reduced their QCOM position by 37%, and yet it is still the 3rd largest fund holding. That amazed me; they've really bet big on this name. I attribute this sell to some profit taking and some freeing up cash to re-work the portfolio. After all, its still a massive holding and they've sold off more than a 3rd of the position. Raytheon (RTN) was also reduced by 19% and yet it is the fund's 8th largest holding. So, not a whole lot to worry about there either.

Maverick sold completely out of some of their bigger and longer term holdings in that of CVS Caremark and Burger King. They also sold out of Echostar (SATS) and it seems they prefer DTV and DISH in the satellite space. Actually, it looks like they swapped completely out of SATS and into DISH. Another semi-big holding they sold out of was Guess. Then some smaller holdings of fellow retailers Macys and Men's Warehouse were sold off as well. It seems that Maverick must have taken a real beating with all of these retailers and that probably played a large part in their rumored weak start to 2008. They've clearly admitted they were wrong on those and sold them off completely in search of better sectors. One removal I was confused about was Crown Castle, as their investment in the wireless tower industry seemed to be a smart one. But, now that they've sold out, its time to revisit that name and make sure nothing is fundamentally wrong with it. Maybe Maverick needed the cash after their bad beginning of the year, maybe they were taking profits in the name, who knows. But, I strongly believe that the wireless tower play was a smart one and I'm going to look into it deeper, as the future is obviously in wireless technology.

Not a whole lot to look at in terms of positions with no change. They kept their GILD position unchanged as the fund's 6th largest holding. They held their CNET as well, and I'm sure they've actually sold it off now that the stock has popped immensely on its takeover news. Like fellow Tiger Cub manager John Griffin at Blue Ridge, Ainslie and Maverick have a position in First Marblehead. Maverick didn't quite add in mass like Blue Ridge did... but then again maybe Blue Ridge was playing catch-up. As I've said earlier, there are usually some commonalities between the portfolios of all the ex-Tiger Management gang. They undoubtedly still keep in touch and share their good ideas and then swarm them in mass. So, identifying the names that all of the funds hold collectively could create quite a killer portfolio. I'll actually be developing a model portfolio later based on the consensus ex-Tiger Management funds (ie: a portfolio of stocks that appear in all 3 funds' portfolios: Maverick, Lone Pine, and Blue Ridge). Now that I've covered the 3 major proteges of Julian Robertson, I can sift through the data to find all the commonalities and create a mock modern day Julian Robertson-esque Tiger Management portfolio to track.

Personal Favorites out of Maverick's portfolio: AAPL QCOM GILD AMX BNI TMO POT AMLN MYL DTV RMD

Most interesting move(s): 1. Bringing Avon Products up to the #4 fund holding 2. Doubling down on Autozone and making it the #11 fund holding 3. Substituting DISH in place of SATS 4. Seemingly shifting out of most of their retail plays (including selling off their entire huge chunk of CVS) 5. Continuing to slowly build positions in RMD, DTV, and MYL

Note/ Of their positions, I'm long: AAPL QCOM GILD AMX TMO POT

Names I want to research further: CCI DTV DISH MYL RMD

Keep an eye out for continued hedge fund 13f tracking when I cover Greenlight Capital (David Einhorn), Atticus Capital (Timothy Barakett), and a few other big funds/whales.