Lee Ainslie's Maverick Capital Bet Big On Technology Stocks ~ market folly

Thursday, December 17, 2009

Lee Ainslie's Maverick Capital Bet Big On Technology Stocks

This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, 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. (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.

Maverick manages well over $8 billion and focuses on straight up stock picking on both sides of the book (long and short) but they do not employ 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 typically don't go above 5-8% of the portfolio. They focus on value and growth at a reasonable price (GARP) investments and they like to compare enterprise value to sustainable free cash flow. To learn more about this hedge fund, check out our profile/biography on Lee Ainslie & Maverick.

Keep in mind that the positions listed below were Maverick's long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.

Some New Positions
Brand new positions that they initiated last quarter:

Corning (GLW)
Qualcomm (QCOM)
Citigroup (C)
Macys (M)
CVS Caremark (CVS)
Itron (ITRI)
Pfizer (PFE)
Bank of America (BAC)
Microsoft (MSFT)
Williams Sonoma (WSM)
Rovi Corporation (ROVI)
Google (GOOG)
Equinix (EQIX)
Whole Foods (WFMI)

Some Increased Positions
Positions they already owned but added shares to:
First Solar (FSLR): Increased position by 307.5%
Visa (V): Increased by 88.2%
Apollo Group (APOL): Increased by 49.4%
Gilead Science (GILD): Increased by 48.9%
Marvell Technology (MRVL): Increased by 42.9%
Priceline (PCLN): Increased by 42.2%
Berkshire Hathaway (BRK.B): Increased by 40%
Berkshire Hathaway (BRK.A): Increased by 37%
Amgen (AMGN): Increased by 31.3%

Some Reduced Positions
Stakes they sold shares in but still own:
Gap (GPS): Reduced position by 46.7%
Lorillard (LO): Reduced by 44.9%
PepsiCo (PEP): Reduced by 35.8%
Lender Processing (LPS): Reduced by 26%
Palm (PALM): Reduced by 22.3%
America Movil (AMX): Reduced by 18.9%
Davita (DVA): Reduced by 18.8%
Apache (APA): Reduced by 18.7%
Covidien (COV): Reduced by 9.9%

Removed Positions
Positions they sold out of completely:
Wyeth (WYE)
Walgreen (WAG)
Netapp (NTAP)
Research in Motion (RIMM)
Mastercard (MA)
State Street (STT)
Eaton (ETN)
Leap Wireless (LEAP)
CTrip (CTRP)
Hanesbrands (HBI)
Discovery Communications - Series C (DISCK)
Jetblue (JBLU)
Fifth Third Bancorp (FITB)
Finish Line (FINL)
Orthofix (OFIX)
BPW Acquisition (BPW-U)
Liberty Media Corp - Series A (LCAPA)
Officemax (OMX)

Top 15 Holdings by percentage of assets reported on 13F filing

  1. Apple (AAPL): 3.38%
  2. Hewlett Packard (HPQ): 3.37%
  3. Corning (GLW): 3.1%
  4. Qualcomm (QCOM): 2.8%
  5. Priceline (PCLN): 2.52%
  6. Apollo Group (APOL): 2.5%
  7. JPMorgan Chase (JPM): 2.5%
  8. Gilead Sciences (GILD): 2.48%
  9. Citigroup (C): 2.46%
  10. Macys (M): 2.43%
  11. Marvell Technology (MRVL): 2.42%
  12. Amgen (AMGN): 2.3%
  13. Liberty Media (LMDIA): 2.28%
  14. Progressive (PGR): 2.21%
  15. First Solar (FSLR): 2.2%

Maverick added to technology names the most on a quarter over quarter basis. Four of their top 10 holdings were brand new positions just added. Half of those were technology names (Qualcomm & Corning) and they were Maverick's third and fourth largest holdings respectively. Not to mention, Maverick's top two holdings were also tech plays in Apple and Hewlett Packard. Do you see a theme here?

Lee Ainslie's hedge fund also added largely to shares of Priceline, Apollo Group, and JP Morgan Chase. This is intriguing mainly because other 'Tiger Cub' hedge funds were buying the exact same names (see Andreas Halvorsen's Viking Global which we just covered this morning). A few other names Ainslie added to that are more unique to their portfolio include Gilead Sciences as well as First Solar, a name that they tripled their exposure in.

We also want to focus on their new portfolio addition in CVS Caremark. Way back in the first quarter of this year, Maverick sold out of CVS in favor of competitor Walgreens. Now, fast forward to the third quarter of this year and we see that Maverick has done the opposite and has sold completely out of Walgreens and started a new stake in CVS Caremark again. Possibly the most interesting aspect of this whole 'switcheroo' is that Lee Ainslie was at an investing conference in late October at the University of Virginia and he mentioned one of his current favorite plays was CVS. He obviously just added this name in the third quarter and then a few days after the conference on November 5th we saw shares of CVS drop from $36 to $28 and wondered if Ainslie was buying or not. Shares are now trading around the $30 mark. We'll definitely be interested to see what Ainslie did with this position when the fourth quarter portfolio disclosures are released given that he has been flip-flopping on various pharmacy plays throughout the year.

Below are some graphical illustrations of the changes made to Maverick Capital's portfolio courtesy of Drew Robertson at Financial Research Station:

(click to enlarge)

And also:

(click to enlarge)

Assets from the collective holdings reported to the SEC via 13F filing were $8.3 billion this quarter compared to $6.4 billion last quarter, so they deployed almost $2 billion into long US equities on a quarter over 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. Also, please again note that these positions were as of September 30th so two months have elapsed and they've undoubtedly shifted around their portfolio since then.

This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series. We've already covered Seth Klarman's Baupost Group Bill Ackman's Pershing Square, Stephen Mandel's Lone Pine Capital, Dan Loeb's Third Point LLC, David Einhorn's Greenlight Capital, John Paulson's firm Paulson & Co and Andreas Halvorsen's Viking Global so check back daily as we'll be covering new hedge fund portfolios.

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