David Stemerman's Hedge Fund Conatus Capital Favors Tech: 13F Filing ~ market folly

Wednesday, May 26, 2010

David Stemerman's Hedge Fund Conatus Capital Favors Tech: 13F Filing

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund filings.)

Next up is David Stemerman's hedge fund Conatus Capital. Stemerman founded his firm last year with $2.3 billion after he left Stephen Mandel's Lone Pine Capital. Conatus places an emphasis on bottom-up individual stockpicking via a long/short equity strategy. Stemerman's firm focuses on the quality of the business and the quality of the associated management team. They seek short positions by identifying companies that are seeing increased competition from low-cost alternatives and those that are being displaced by new technology. We've previously taken a more in-depth look at Conatus' investment process for those interested. For 2009, Stemerman's firm finished up 19.16% as detailed in our hedge fund performances post.

The positions listed below were their long equity, note, and options holdings as of March 31st, 2010 as filed with the SEC. All holdings are common stock unless otherwise denoted:

Brand New Positions
JPMorgan Chase (JPM)
Union Pacific (UNP)
American Tower (AMT)
US Bancorp (USB)
FMC Technologies (FTI)
City National (CYN)
Mead Johnson Nutrition (MJN)
Sotheby's Holdings (BID)
Charles Schwab (SCHW)
Webmd Health (WBMD)

Increased Positions
BHP Billiton (BHP): Increased position size by 103%
Ctrip.com (CTRP): Increased by 94.4%
Wells Fargo (WFC): Increased by 91.8%
Amazon.com (AMZN): Increased by 84%
Schlumberger (SLB): Increased by 73%
Bed Bath & Beyond (BBBY): Increased by 58.5%
Visa (V): Increased by 54.9%
Goldman Sachs (GS): Increased by 52.5%
NetApp (NTAP): Increased by 48.5%
Urban Outfitters (URBN): Increased by 38.4%
Google (GOOG): Increased by 35%
Polo Ralph Lauren (RL): Increased by 35%
Walter Energy (WLT): Increased by 29.4%
Salesforce.com (CRM): Increased by 25.9%
Citrix Systems (CTXS): Increased by 23.6%
Crown Castle (CCI): Increased by 20.8%

Reduced Positions
Priceline.com (PCLN): Reduced position size by 34.4%

Positions They Sold Out of Completely
Abercrombie & Fitch (ANF)
Credicorp (BAP)

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

1. Apple (AAPL): 5.6%
2. Express Scripts (ESRX): 4.4%

3. Google (GOOG): 3.9%

4. Estee Lauder (EL): 3.9%

5. Cognizant Technologies (CTSH): 3.9%

6. Amazon.com (AMZN): 3.9%

7. Walter Energy (WLT): 3.9%

8. Cisco Systems (CSCO): 3.8%

9. Medco Health (MHS): 3.8%

10. Schlumberger (SLB): 3.4%

11. Wells Fargo (WFC): 3.3%

12. Visa (V): 3.3%

13. Covidien (COV): 3.2%

14. JPMorgan Chase (JPM): 2.8%

15. Bed Bath & Beyond (BBBY): 2.8%

As you can see, Conatus Capital did little in the way of selling in the first quarter of 2o10. In fact, they were quite active on the buying side, adding to numerous existing stakes like BHP Billiton, Ctrip.com, Wells Fargo, and Amazon.com. They also started brand new stakes in JPMorgan Chase, Union Pacific, and American Tower among others. Given the recent market decline, it will be intriguing to see next time around whether Conatus was reducing long exposure or if they continued to add.

Since Stemerman previously plied his trade at Stephen Mandel's Lone Pine Capital, it should come as no surprise that this portfolio has obvious similarities to Lone Pine's. While the typical 'hedge fund favorite stocks' like Apple and Amazon are present, both Conatus and Lone Pine are bullish on shares of Estee Lauder and Cognizant Technologies, names we don't see as frequently in hedge fund portfolios.

Lastly, we want to point out the three sectors Conatus seems to like the most: technology, health, and energy. They own the typical tech bellwethers in Apple, Google, Cisco, and Amazon. But at the same time, they're focusing on niche segments like cloud computing. Shifting to pharmacy benefit management companies (PBMs), Conatus has a large position in Express Scripts, a company we saw fellow hedge fund Viking Global heavily favors. Additionally, Conatus is long Medco Health as their ninth largest US equity long. In energy, Conatus likes Schlumberger and Walter Energy. In the end though, technology is by far and away the overwhelming theme as five of their top ten positions are in tech.

As we've previously detailed, Conatus is bullish on cloud computing and this is evident from their positions in VMWare, Citrix Systems, and NetApp. And as we've also highlighted, hedge funds favor wireless tower stocks and Conatus is no different: they own all three majors in American Tower, Crown Castle, and SBA Communications.

Assets reported on the 13F filing were $2.6 billion this quarter. Data from the SEC is aggregated and sorted automatically by Alphaclone, our source for hedge fund tracking, replicating, and performance backtesting (Market Folly readers can receive a special free 30 day trial). Remember that these filings are not representative of the hedge fund's entire base of AUM.

This post is part of our daily hedge fund portfolio tracking series. We've already detailed activity from numerous managers so click the links below to be taken to the respective portfolio updates: Seth Klarman's Baupost Group, Warren Buffett's Berkshire Hathaway, Stephen Mandel's Lone Pine Capital, and Bill Ackman's Pershing Square, David Einhorn's Greenlight Capital, Eddie Lampert's RBS Partners, David Tepper's Appaloosa Management, Mohnish Pabrai's Investment Fund, John Griffin's Blue Ridge Capital, Lee Ainslie's Maverick Capital, Bruce Berkowitz's Fairholme Capital Management, Andreas Halvorsen's Viking Global, Dan Loeb's Third Point, John Paulson's hedge fund Paulson & Co, Chase Coleman's Tiger Global, Roberto Mignone's Bridger Management, and Phil Falcone's Harbinger Capital Partners. Be sure to check back daily for new hedge fund updates.

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