Lee Ainslie's Maverick Capital Sells CVS Caremark (CVS) In Favor Of Walgreens (WAG): 13F Filing Q1 2009 ~ market folly

Thursday, June 4, 2009

Lee Ainslie's Maverick Capital Sells CVS Caremark (CVS) In Favor Of Walgreens (WAG): 13F Filing Q1 2009

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

Next up, we have Maverick Capital. Lee Ainslie started Maverick Capital back in 1993 with $38 million. Nowadays, the fund is worth over $5 billion. Ainslie, like many of the other fund managers we've profiled, has a background rooted in learning from legendary great Julian Robertson at Tiger Management. Just yesterday we ran a profile on Robertson and took a deeper look at his current big investment. These proteges (nicknamed 'Tiger Cubs') learned from the best and have had great success running their own funds. Some of the other Tiger Cubs include Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, and Andreas Halvorsen's Viking Global.

Maverick's strategy is straight up stock picking, both long and short. While they focus on both the long and short sides of the book, they do not employ pairs trades. Maverick places a large emphasis on a team atmosphere and focuses on risk management. Instead of having one or two people making all the investment decisions, Maverick has six industry sector heads. The industry heads of the consumer, health care, cyclical, retail, financial, and technology sectors all report to Ainslie. While Ainslie still has the ultimate say, he considers them peers and values the team culture at Maverick. In an interview in the past, Ainslie has said "I spend the majority of my day talking to them because they know so much more about each of their stocks than I could ever hope to. We're all peers." Each team typically has around 7 analysts.

They are a long/short hedge fund in the true sense of the definition. 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. 2008 was a rough year for them (and many other funds) as their Maverick Fund finished -26.2% for the year, as noted in our year-end hedge fund performance numbers post. Some of their notable past activity includes selling out of their entire Under Armour (UA) position via a 13G filing, as well as filing a 13G on Cardiovascular Systems (CSII).

For more background on Ainslie and Maverick, check out the profile/biography on them that we posted this morning.

The following were Maverick's long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.

Some New Positions (Brand new positions that they initiated in the last quarter):
Walgreens (WAG)
Best Buy (BBY)
KLA-Tencor (KLAC)
Progressive (PGR)
Wellpoint (WLP)
Strayer Education (STRA)
Mastercard (MA)
Sears Holdings (SHLD)
Pepsico (PEP)
Davita (DVA)
Visa (V)
AmerisourceBergen (ABC)
PNC Financial Services (PNC)
Advanced Micro Devices (AMD) Bonds
Parker Hannifin (PH)
Green Mountain Coffee Roasters (GMCR)
Liberty Media (LCAPA)
Electronic Arts (ERTS)
Time Warner Cable (TWC)
Orthofix International (OFIX)
OptionsXpress (OXPS)
Air Methods (AIRM)
Bankrate (RATE)
Time Warner (TWX)

Some Increased Positions (A few positions they already owned but added shares to)
Netapp (NTAP): Increased by 190%
First Solar (FSLR): Increased by 90%
Lorillard (LO): Increased by 80%
HanesBrands (HBI): Increased by 61%
Cognizant Tech (CTSH): Increased by 57%
Resarch in Motion (RIMM): Increased by 40%
RenaissanceRe (RNR): Increased by 35%
Wyeth (WYE): Increased by 30%

Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Priceline (PCLN): Reduced by 37%
Fidelity National (FIS): Reduced by 29%
Pfizer (PFE): Reduced by 27%
JPMorgan Chase (JPM): Reduced by 25%
Gilead Sciences (GILD): Reduced by 24%
Lender Processing (LPS): Reduced by 20%
Qualcomm (QCOM): Reduced by 20%

Removed Positions (Positions they sold out of completely)
CVS Caremark (CVS)
Staples (SPLS)
Baxter (BAX)
Carnival (CCL)
Covidien (COV)
Devry (DV)
Macys (M)
Genentech (DNA)
Dicks Sporting Goods (DKS)
State Street (STT)
Textron (TXT)
Health Net (HNT)
Interval Leisure (IILG)
Universal American (UAM)

Top 15 Holdings (by % of portfolio)

  1. Walgreens (WAG): 4.33% of portfolio
  2. Lorillard (LO): 3.63% of portfolio
  3. Apple (AAPL): 3.34% of portfolio
  4. Research in Motion (RIMM): 3.28% of portfolio
  5. First Solar (FSLR): 3.26% of portfolio
  6. Raytheon (RTN): 3.1% of portfolio
  7. Wyeth (WYE): 3.08% of portfolio
  8. Cognizant Technology (CTSH): 3.06% of portfolio
  9. Qualcomm (QCOM): 2.93% of portfolio
  10. Liberty Media (LMDIA): 2.83% of portfolio
  11. Best Buy (BBY): 2.73% of portfolio
  12. Amgen (AMGN): 2.7% of portfolio
  13. Marvell Technology (MRVL): 2.59% of portfolio
  14. Apollo Group (APOL): 2.56% of portfolio
  15. Netapp (NTAP): 2.19% of portfolio

Maverick started a brand new position in Walgreen's (WAG) and brought it all the way up to their top holding. Additionally, they sold completely out of their CVS Caremark (CVS) position (which had previously been their #1 holding the quarter prior). So, it looks like they've straight up swapped CVS in favor of WAG. That is by far and away their biggest move of the last quarter. Their brand new addition of Best Buy (BBY) was noted as well.

Regarding positions they already owned, Maverick significantly bumped up two of their holdings. They added significantly to their Lorillard (LO) and First Solar (FSLR) plays, as those two stand as their 2nd and 5th largest positions respectively. We also noticed their large purchase of Netapp (NTAP) shares, but even after the purchases, that position is still only their 15th largest holding.

Maverick's portfolio also definitely showcases their 'Tiger Cub' roots. They hold numerous Tiger favorite names such as Apollo Group, Wyeth, Apple, Lorillard, and Strayer Education. What's interesting when you track the Tiger Cubs is the slight divergences you begin to see amongst managers. While all of them are rooted in the same principles of investing they employed in their time at Tiger, they have all added their own twist and personal touch to the strategy. As such, you now see Maverick still holding Lorillard (LO) as their 2nd largest position. While, on the other hand, we recently saw Lone Pine completely sell out of their LO position. Conversely, a while ago John Griffin's Blue Ridge Capital had sold out completely out of Tiger Cub favorite name America Movil (AMX) when Lone Pine continued to add to their position. These divergences between the Tiger Cubs have become very intriguing to us and it almost becomes 'who do you want to follow now?' when they split opinions. In the end, it appears that Maverick still has conviction behind their LO play.

Assets from the collective holdings reported to the SEC via 13F filing were $5.5 billion this quarter compared to $4.8 billion last quarter. So, they definitely put some money to work on the long side of the portfolio over the first quarter of 2009. Maverick is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. Check back each day as we cover new fund portfolios. We've already covered Andreas Halvorsen's Viking Global, John Paulson's hedge fund Paulson & Co, Stephen Mandel's Lone Pine Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, and David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, and Timothy Barakett's Atticus Capital.

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