Lee Ainslie's Maverick Capital Favors Apple, Wyeth, Cognizant: 13F Filing ~ market folly

Wednesday, August 26, 2009

Lee Ainslie's Maverick Capital Favors Apple, Wyeth, Cognizant: 13F Filing

This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.

Next up is Lee Ainslie's hedge fund firm Maverick Capital. Ainslie learned his ways under the guidance of hedge fund legend Julian Robertson and is a member of the Tiger Cub family. (For those of you unfamiliar, a Tiger Cub is a manager who once worked at legendary Tiger Management and eventually started their own fund. You can view a Tiger Cub family tree here). As such, Maverick is a part of the Tiger Cub portfolio clone created with Alphaclone that is seeing great returns and is comprised of holdings widely held by all of the Tiger Cub hedge funds.

Specifically, Maverick manages over $5 billion and focuses on straight up stock picking on both the long and short sides of the portfolio. However, they do not put on pairs trades. They have six industry heads and each team handles their respective sector. Risk management is a big focus at Maverick and position sizes don't normally get above 5-8% of the portfolio. They use a value yet growth at a reasonable price (GARP) tolerable investing style and they like to compare enterprise value to sustainable free cash flow. They have had great historical performance, but suffered in 2008 where their Maverick Fund was -26.2% for the year. For a more in-depth look at this hedge fund, head on over and check out our profile/biography on Lee Ainslie & Maverick.

The following were Maverick's long equity, note, and options holdings as of June 30th, 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):
Of notable size are: Hewlett Packard (HPQ), Staples (SPLS), The Gap (GPS), Covidien (COV), Apache (APA), Celgene (CELG), Tyco (TYC), State Street (STT), Black & Decker (BDK), Leap Wireless (LEAP), Ctrip (CTRP), and NII Holdings (NIHD).

The rest of their brand new positions are less than 0.5% of the portfolio each: Jetblue Airways (JBLU), Fifth Third Bancorp (FITB), Capella Education (CPLA), Signet Jewelers (SIG), Digital Globe (DGI), and Office Max (OMX).

Some Increased Positions (A few positions they already owned but added shares to)
America Movil (AMX): Increased by 110.5%
Pepsico (PEP): Increased by 103%
JPMorgan Chase (JPM): Increased by 85.5%
Parker Hannifin (PH): Increased by 85.13%
Chico Fas (CHS): Increased by 73.5%
Progressive (PGR): Increased by 52.8%
Gilead Sciences (GILD): Increased by 44.4%
Wyeth (WYE): Increased by 31%
Mastercard (MA): Increased by 22.8%

Some Reduced Positions (Some positions they sold some shares of)
Research in Motion (RIMM): Reduced by 54.5%
Raytheon (RTN): Reduced by 48.5%
Marvell Technology (MRVL): Reduced by 44.3%
Walgreen (WAG): Reduced by 28.5%
Lorillard (LO): Reduced by 22.2%
Liberty Media (LMDIA): Reduced by 22.1%
Amgen (AMGN): Reduced by 19.66%
Berkshire Hathaway (BRK-A): Reduced by 16.5%

Removed Positions (Positions they sold out of completely)
Notable sales of size include: Qualcomm (QCOM), Best Buy (BBY), KLA Tencor (KLAC), Fidelity National Information (FIS), Citrix (CTXS), AmerisourceBergen (ABC), PNC Financial Services (PNC), Pfizer (PFE), Thermo Fisher Scientific (TMO), Gymboree (GYMB), American Tower (AMT), and Green Mountain Coffee (GMCR).

The rest of the sales were less than 0.5% of the portfolio each: Electronic Arts (ERTS), Advanced Micro Devices (AMD) Bond, GMarket (GMKT), Time Warner Cable (TWC), Biogen Idec (BIIB), OptionsXpress (OXPS), Citizens Republic (CRBC), Air Methods (AIRM), Petroquest (PQ), Bankrate (RATE), and Time Warner (TWX).

Top 15 Holdings by percentage of long portfolio *(see note below regarding calculations)

  1. Apple (AAPL): 3.85% of portfolio
  2. Wyeth (WYE): 3.65% of portfolio
  3. Cognizant Technology (CTSH): 3.32% of portfolio
  4. Hewlett Packard (HPQ): 3.18% of portfolio
  5. Pepsico (PEP): 3.16% of portfolio
  6. Walgreen (WAG): 3.01% of portfolio
  7. Lorillard (LO): 2.66% of portfolio
  8. Progressive (PGR): 2.57% of portfolio
  9. Staples (SPLS): 2.54% of portfolio
  10. Liberty Media (LMDIA): 2.53% of portfolio
  11. Gap (GPS): 2.52% of portfolio
  12. Netapp (NTAP): 2.37% of portfolio
  13. XTO Energy (XTO): 2.37% of portfolio
  14. Covidien (COV): 2.21% of portfolio
  15. Gilead Sciences (GILD): 2.17% of portfolio

Like Stephen Mandel of Lone Pine, fellow Tiger Cub Lee Ainslie was out buying large cap names with very visible brands. He added Hewlett Packard (HPQ), Staples (SPLS), and The Gap (GPS) all as brand new positions and brought them up to their 4th, 9th, and 11th largest holdings respectively. Maverick's top position is Apple (AAPL) which they largely left untouched. Shares of AAPL have surged 33% from the end of March until the end of June (the time period elapsed between disclosure dates) and as such has appreciated its way up to their top holding. When we last looked at Maverick's portfolio from Q1 2009, it was their 3rd largest holding.

Wyeth (WYE) also ranks highly in their portfolio as Maverick is playing the risk arbitrage game here along with a ton of other hedge funds. They boosted their stake in this name by 31% over the past quarter as well. Keep in mind that their WYE long is most likely only one leg of the trade they have on in this arbitrage play.

Sticking to the 'play the financials' meme that so many hedge funds have adhered to last quarter, Maverick boosted their position in JPMorgan (JPM) by over 85%. We highlight this because we have seen a very visible trend amongst the various hedge fund 13F filings. John Paulson bought Bank of America (BAC) in a big way, as did Dan Loeb of Third Point, among many other hedge funds.

In terms of selling, we wanted to point out that over the past quarter Lee Ainslie's fund sold completely out of numerous positions that we had previously known as 'hedge fund darlings,' i.e. they were stocks owned by many hedge funds (and most often other Tiger Cubs). Maverick completely dumped Qualcomm (QCOM), Fidelity National Information (FIS), Thermo Fisher Scientific (TMO), and American Tower (AMT). In particular, QCOM and AMT have long been Tiger Cub favorite picks. This is where the divergences start to get interesting as other Tiger Cub funds still hold AMT while Maverick is out of it now.

On the contrary, we see they doubled their stake in America Movil (AMX). This transaction works conversely in that practically all of the ex-Tiger funds owned AMX and then sold out of it. Stephen Mandel's Lone Pine was the only one who continued to hold a position of size. So, contrary to most of his Tiger peers, Ainslie has now boosed his AMX stake. Even though it is not in the top 15 holdings, we thought it was worth pointing out. The Tiger Cubs often have very similar portfolios, so we like to highlight the divergences we see along the way.

*Note regarding portfolio percentages: Assets from the collective holdings reported to the SEC via 13F filing were $6.4 billion this quarter compared to $5.5 billion last quarter, so a large increase on a quarter by quarter basis. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. If you were to calculate percentage weightings in the actual hedge fund portfolio, they would obviously be different since you would divide position sizes by their total assets under management.

That wraps up Maverick's latest portfolio update. For more on the background of Ainslie, we highly recommend checking out the profile on Maverick we've penned in the past. This is just one of the 40+ prominent funds that we'll be covering in our Q2 2009 hedge fund portfolio series. So far, we've already covered the holdings of Bill Ackman's Pershing Square Capital Management, David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Dan Loeb's Third Point LLC, Soros Fund Management (George Soros), and Stephen Mandel's Lone Pine Capital. Check back each day as we cover prominent hedge fund portfolios.

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