Hedge Fund Viking Global Likes American Tower (AMT), Invesco (IVZ): Q2 Letter

Andreas Halvorsen's hedge fund firm Viking Global is out with its second quarter 2010 investor letter and courtesy of Dealbreaker we wanted to highlight some of their latest portfolio maneuvers. Here are Viking's latest top 10 positions:

1. Invesco (IVZ)
2. Unilever (UN)
3. American Tower (AMT)
4. Oracle (ORCL)
5. Comcast (CMCSA)
6. News Corp (NWSA)
7. Tyco International (TYC)
8. Sherwin-Williams (SHW)
9. Goodrich (GR)
10. Adobe Systems (ADBE)

Right off the bat there are several changes to highlight between Q1 and Q2. Back in the first quarter, Visa (V) was Viking's largest position. This time around, Visa is nowhere to be found in their top 10 positions. One might assume they reduced or exited this position, but there was no commentary on this stake to verify. If you read into their letter, you'll see that they are more focused on building concentrated positions and as a result ramped up stakes in various companies. Visa, apparently, was not one of them.

It's quite possible that the credit card processor is still a holding at Viking and other portfolio positions merely leapfrogged their V stake. The same could be said for their position in Express Scripts (ESRX) as it was their fourth largest holding in the first quarter and is nowhere to be found on their top 10 holdings for Q2. These positions will certainly be something to look for in their Q2 13F filing that we'll cover when it's released in a few weeks.

For the second quarter, Halvorsen's hedge fund maintains its long-held position in Invesco as it moves back up to their top holding. Halvorsen writes,

"Our largest loss in the quarter was Invesco which cost us 1.3% in VGE and 1.4% in VLF. Invesco has been in our top ten list since we initiated the position in the fourth quarter of 2007 and was our second most profitable investment in 2009. During the second quarter, Invesco sold off along with other asset managers despite reporting better than consensus first quarter earnings and higher synergy estimates from the Van Kampen acquisition. Encouraged by the fundamental strength of the company and financial and strategic benefits from the Van Kampen acquisition, our core thesis has not changed and we continue to believe that Invesco will outperform its competitors. Viking is currently net long 2.4% in the Asset Management and Custody Banks sub-industry group, which includes the Invesco long position and short positions in asset managers that we believe will experience deteriorating fundamentals and are more levered towards a declining market."

In terms of other Viking positions, Unilever also remains a high conviction pick for them. Moving down the top 10 positions list, News Corp and Tyco also retain their status as a top holding from Q1 to Q2. In terms of new additions, Viking has moved up the following positions: Adobe, American Tower, Comcast, Goodrich, Oracle, and Sherwin-Williams.

Of those stakes, Viking has increased conviction in their new American Tower (AMT) position. Viking likes the company due to its solid business model with high barriers of entry, pricing power, and strong secular growth. Additionally, the company has compelling operations overseas in numerous growth markets. Of this stake, Halvorsen writes,

"We have owned American Tower in the past and we re-initiated a position this quarter because we believe the market has taken many of these characteristics for granted and is underestimating future growth opportunities both domestically and internationally. Additionally, we believe that American Tower’s shareholder remuneration will accelerate over the next several quarters and that, in light of certain tax incentives, the company may convert to a REIT. We find American Tower to have a superior business model relative to most traditional REITs, yet it trades at a discount to the REIT-average. We believe the combination of predictable growth, accelerating shareholder returns, and pending REIT status will generate greater shareholder interest over the next several quarters causing the stock to trade closer to our price target over time. As of June 30, American Tower was our third largest long position at 4.3% of VGE capital and 4.9% of VLF capital."

We've touched on this industry as a compelling investment numerous times as hedge funds favor wireless tower stocks. Numerous high profile managers have moved in and around AMT. Additionally, we've highlighted how hedge funds are bullish on rival company Crown Castle International (CCI) as well. SBA Communications (SBAC) is the other player in the sector and some funds have moved in and out of stakes there as well.

In addition to these portfolio changes, it's obviously worth noting that Viking has struggled performance-wise this year as their Viking Global Equities portfolio was down 5% in the second quarter. As such, Halvorsen penned quite an explanation as to how Viking will strive to atone for these errors and the solution apparently circles around the idea of increased concentration in their highest conviction picks. As such, Viking has added to numerous positions, many of which we've detailed recently. It will be interesting to see if Viking's increased concentration (and possibly increased volatility) is a recipe for correcting their recent struggles.

We highly recommend reading Viking Global's entire letter on Dealbreaker here.

Andreas Halvorsen's Viking Global Doubles Down on Google, CME Group, News Corp: 13F Filing Q1 2010

(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 Andreas Halvorsen's hedge fund Viking Global. Viking employs bottom-up fundamental stockpicking, like most all other 'Tiger Cub' hedge funds. Halvorsen attended Williams College and received his MBA from Stanford and he has previously worked at Morgan Stanley and Julian Robertson's legendary hedge fund Tiger Management. In Alpha's 2008 hedge fund rankings, Viking was ranked #70 in the world. We recently got some insight as to Viking's rationale behind some of their positions in their first quarter letter.

We recently learned that Chief Investment Office David Ott will be leaving the firm. There were originally three founding members of Viking: Halvorsen, Ott, and Brian Olson. Olson left the firm in 2005, Ott is leaving now in 2010 and as such, that leaves Halvorsen as the sole remaining founder. Viking's positions are mixed into the Tiger Cub Portfolio created with Alphaclone where you can replicate the portfolios of some of the top hedge funds around.

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
Bank of America (BAC)
Baker Hughes (BHI)
Colgate Palmolive (CL)
Comcast (CMCSA)
PNC Financial (PNC)
Agrium (AGU)
Mednax (MD)
Frontline (FRO)
Psychiatric Solutions (PSYS)
United Technologies (UTX)
Lennar (LEN.B)
Family Dollar Stores (FDO)
NVR (NVR)
McKesson (MCK)
Intermune (ITMN)
Owens Corning (OC)


Increased Positions
Metlife (MET.B): Increased position by 926%
Universal Health (UHS): Increased by 658%
Sherwin Williams (SHW): Increased by 277%
Ingersoll Rand (IR): Increased by 160%
Smithfield Foods (SFD): Increased by 148.5%
Rockwell Collins (COL): Increased by 132.6%
Devon Energy (DVN): Increased by 130.8%
News Corp (NWSA): Increased by 124%
CME Group (CME): Increased by 120%
Google (GOOG): Increased by 106%
Tyco International (TYC): Increased by 99.5%
Pfizer (PFE): Increased by 70.5%
Hess (HES): Increased by 68.4%
Pall (PLL): Increased by 50.9%
Davita (DVA): Increased by 49.7%
Oracle (ORCL): Increased by 47.6%
Health Management (HMA): Increased by 34%
Halliburton): Increased by 31.6%
Visa (V): Increased by 21.4%
Invesco (IVZ): Increased by 16.2%


Reduced Positions
Capital One (COF): Reduced position size by 97.6%
Lincare (LNCR): Reduced by 54.4%
Beckman Coulter (BEC): Reduced by 85.2%
CVS Caremark (CVS): Reduced by 46.1%
Illumina (ILMN): Reduced by 44.8%
Autodesk (ADSK): Reduced by 38.9%
Disney (DIS): Reduced by 27.8%
Wellpoint (WLP): Reduced by 27.7%
Qwest Communication (Q): Reduced by 27%
JPMorgan Chase (JPM): Reduced by 27%
Virgin Media (VMED): Reduced by 26.4%
Biovail (BVF): Reduced by 25%
Cigna (CI): Reduced by 24.8%
Danaher (DHR): Reduced by 22.5%
Goodrich (GR): Reduced by 17.4%


Positions They Sold Out of Completely
Bank of America preferred (BAC-S)
Mastercard (MA)
CSX (CSX)
Aetna (AET)
AON (AON)
DirecTV (DTV)
NRG Energy (NRG)
Franklin Resources (BEN)
Citigroup (C)
Wells Fargo (WFC)
Qualcomm (QCOM)
Manulife Financial (MFC)
Host Hotel & Resort (HST)
Owen Illinois (OI)
Brocade Communications (BRCD)
Allegheny Energy (AYE)
Manitowoc (MTW)
Atlas Energy (ATLS)
Apollo Group (APOL)
Pharmaceutical Products (PPDI)


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

1. Visa (V): 9.8%
2. Invesco (IVZ): 7.7%
3. Express Scripts (ESRX): 4.5%
4. Tyco (TYC): 4.4%
5. Bank of America (BAC): 4.3%
6. Metlife (MET.B): 4%
7. News Corp (NWSA): 3.2%
8. JPMorgan Chase (JPM): 2.9%
9. Goodrich (GR): 2.8%
10. Hewlett Packard (HPQ): 2.7%
11. Google (GOOG): 2.7%
12. Wellpoint (WLP): 2.4%
13. CME Group (CME): 2.4%
14. ACE (ACE): 2.4%
15. Sherwin Williams (SHW): 2.3%


Many of Viking's portfolio moves were previously telegraphed in their first quarter letter. In it, we saw that they dumped Mastercard (MA) and clearly now favor Visa (V) in the payment processing space. They maintain their very large position in Invesco as well. Their letter also revealed that they are quite bullish on shares of Express Scripts (ESRX) in the pharmacy benefit management space. At the end of the first quarter it was their third largest US equity long. We also see that they chopped their CVS Caremark (CVS) position nearly in half, a competitor to ESRX in the PBM space. As we detailed last week, Lee Ainslie's Maverick Capital is bullish on CVS.

We take note of Viking's position in CME Group because a few other hedgies were adding shares in the first quarter. We just learned that John Griffin's Blue Ridge Capital also has a sizable stake. Halvorsen's hedge fund also nearly doubled down on their Tyco (TYC) position and brought it up to their fourth largest holding. And while we're on the subject of positions they added to, take a look at Metlife B shares (MET.B) as Viking really added to their stake there. Lastly, we highlight they doubled down on their position in Google (GOOG) as well. We're starting to see lots of hedgies accumulating this technology & internet giant, so that might be worth looking into further considering GOOG is trading below levels where these hedge funds added to their position. Blue Ridge Capital has assembled a large GOOG stake as well.

In terms of positions they sold completely out of, we wanted to highlight Apollo Group (APOL) for a few reasons. Firstly, Viking had this as a 'core' position for a few quarters and so we note their exit. Secondly, we mention this because we're starting to see a divergence of opinion amongst Tiger Cub hedge funds regarding for-profit education stocks. David Stemerman's Conatus Capital had sold out of APOL and other educational plays back in the fourth quarter for a myriad of reasons.

Assets reported on the 13F filing were $9 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, and Bruce Berkowitz's Fairholme Capital Management. Be sure to check back daily for new hedge fund updates.

Andreas Halvorsen & Viking Global Betting On Visa (V): Portfolio Update

Dealbreaker recently posted up the latest letter from Andreas Halvorsen's hedge fund Viking Global. In it, we learn that Chief Investment Officer David Ott will be stepping down to spend more time with family. We also get a glimpse as to what Viking's portfolio looked like at the end of the first quarter and what their next 13F filing will likely look like. Here are their top 10 positions:


1. Visa (V)
2. Invesco (IVZ)
3. Unilever (UN)
4. Express Scripts (ESRX)
5. Tyco International (TYC)
6. Bank of America (BAC)
7. Metlife (MET)
8. News Corp (NWSA)
9. JPMorgan Chase (JPM)
10. Barclays (BCS)


Right away you'll notice that these positions are slightly different from Viking's prior portfolio that we examined. Four of their top ten longs are either new or re-entered positions, including: Tyco, Metlife, News Corp, and Barclays.

Their largest position, Visa, represents 7.0% of capital in their Viking Global Equities fund. We finally get some color as to the investment thesis for each payment processor in particular via Halvorsen's letter. Viking previously owned Mastercard (MA) as well, but they did not own it at the end of the first quarter. Halvorsen writes,

"Our largest loss in the quarter was in Mastercard (MA.N) which cost us 0.7% in VGE and 0.9% in VLF. We have owned Mastercard at various points since its IPO and continue to believe in the long-term strength of its business model. Mastercard was our largest profit contributor in 2007, second-largest in 2008 and third-largest in 2009. Although we continue to believe in strong secular revenue growth for transaction processors, Mastercard relies heavily on credit card spending (which offers slower secular growth than debit cards) and has suffered a few key customer losses that will weigh on results in the short-to-medium term. Visa, which was our largest position as of March 31, was the beneficiary of this share shift."

This is intriguing to note because some hedge funds have owned both payment processors while some managers have favored one over the other. While Viking is monitoring Mastercard for potential re-entry points, it's clear that for now they'll stick with Visa as they expect its strong debit card exposure to bolster performance. You can see which hedge funds own Mastercard here and which hedge funds own Visa here.

The letter also provides some color on their Express Scripts (ESRX) stake as they expect this big pharmacy benefit manager (PBM) to benefit from the impending brand-t0-generic drug conversion. Viking sees significant upside and thinks ESRX commands a multiple of 20x earnings versus the current 16.5x 2011 numbers. Lastly, we just want to highlight Viking's large position in News Corp (NWSA). That stock of course is one of Seth Klarman's big holdings at Baupost Group.

Results wise, Viking has struggled recently. In the first quarter, they were down 0.1% as noted in our recent hedge fund performance numbers post. Halvorsen mentioned that their poor performance this time around was attributed to a few large long positions. This is a shift from the losses they suffered on the short side of the portfolio in 2009 as covered in a previous Viking investor letter. Viking Global Equities' ten largest single name short positions accounted for 15.9% of capital as of March 31st, 2010.

In terms of a pure long/short trade, Viking, like many other hedge funds, had on a long moneycenter banks, short regional banks trade. Halvorsen writes, "Bank longs contributed 0.2% while Bank shorts cost us 1.3%. The longs represented large, well-capitalized banks that, in our opinion, have adequately provided for losses in their loan portfolios. We were short a collection of smaller, regional banks with significant commercial real-estate related loan exposures that we believe have not yet been fully marked-to-market leading to a need for additional capital over time."

Below is an excerpt Viking's first quarter commentary where Halvorsen addresses the notion of hedge fund herding:

"We are often asked by investors how we think about owning stocks that are widely held by other hedge funds. There is no categorical answer to this question, but I would like to discuss some of the factors we consider when establishing and maintaining positions in companies known to be popular with our peers. First and foremost, the critical issue is whether we are ultimately proven right in our analysis. Every single position we take has been independently researched by a Viking analyst and each investment decision has been thoughtfully deliberated by one or more of our portfolio managers. We do not borrow conviction from another firm or individual, although we frequently find it informative to talk to other investors to understand the attributes they value. These conversations can help us better assess what has already been reflected in the prevailing stock price. Incidentally, we often find the greatest success in investments where we have a differentiated view from the Street, but we do not shy away from high conviction ideas just because other hedge funds are involved. Although we thrive on standing alone, we do not take positions opposite other firms just to be contrarian. We recognize that all the shares of a given company must be owned by someone and it can be comforting to know that the other shareholders represent firms that we respect rather than not. There is obviously some risk associated with being in an investment alongside likeminded investors who may have been trained in the stock-picking trade in similar ways in that we may decide to sell at the same time. To limit the consequences of crowded exits, we pay attention to the liquidity of the stocks we trade and take large positions only in the most liquid stocks in the world. The problem of crowding is most acute in our shorts due to the risk of unlimited loss and the potential for cancelled borrow arrangements. Here we do tread carefully. As you are aware, we are guarded in disclosing our shorts to anyone and we do on occasion limit the size of our positions, or eliminate them altogether, when we perceive a position to be tight in the borrow market or crowded by equity long-short investors. Ultimately, we live and die by our analysis, portfolio management skills and efforts to contain risk – managing crowded trades is merely another challenge we face in delivering attractive returns at reasonable risk."

One last thing we found interesting in Halvorsen's commentary is that he essentially confirmed that all the Tiger Cubs talk and bounce investment ideas off each other. Let's face it, we already knew this. But it's still intriguing to see his response to investor concern over holding stocks that many other hedge funds also own.

Keep in mind that you can replicate Viking's long US equity holdings via the Tiger Cub Portfolio created with Alphaclone, the hedge fund backtesting and replication software we use. Alphaclone gave our readers a special free 30 day trial for those interested, so take advantage of it. While Viking Global was originally founded by three Tiger Management veterans (Brian Olson, David Ott, & Andreas Halvorsen), only one of those founders now remains (Halvorsen).

Andreas Halvorsen's Viking Global Portfolio: Express Scripts, Visa, CSX & More

This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking firm movements via SEC filings, check out our series preface on hedge fund 13F filings.

After a brief hiatus we're back with our coverage of Q3 portfolios and today we'll cover Andreas Halvorsen's Viking Global. Halvorsen is a 'Tiger Cub,' or a progeny of legendary investor and hedge fund manager Julian Robertson of Tiger Management. (See the Tiger Cub 'family tree'). Halvorsen has taken what he learned/used at Tiger and added his own spice to the value oriented, yet growth at a reasonable price (G.A.R.P.) tolerable investment style. Viking employs a fundamental strategy, using a bottom-up process to pick stocks.

Halvorsen attended Williams College and received his MBA from Stanford and he has previously worked at Morgan Stanley and Tiger. In Alpha's 2008 hedge fund rankings, Viking was ranked #70 in the world. In terms of updates this year, we had covered Viking's investor letter from the second quarter where they were lagging the markets due to their short positions.

Keep in mind that the positions listed below were Viking'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 in order from largest descending to smallest:
Express Scripts (ESRX)
Cigna (CI)
AON (AOC)
Flowserve (FLS)
AmerisourceBergen (ABC)
Citigroup (C)
Hewlett Packard (HPQ)
PepsiCo (PEP)
Autodesk (ADSK)
Halliburton (HAL)
RenaissanceRe (RNR)
MedcoHealth (MHS)
Rovi Corp (ROVI)
Ingersoll Rand (IR)
CBS (CBS)
Smithfield Foods (SFD)
St Jude Medical (STJ)
Hospitality Prop (HPT)


Some Increased Positions
Positions they already owned but added shares to:
Ralcorp (RAH): Increased position by 7,208%, but overall less than 0.5% of their reported holdings
CSX (CSX): Increased position by 515.7%
Owens and Minor (OMI): Increased by 418%, but overall still under 1% of their long portfolio
Goodrich (GR): Increased by 254%
Apollo Group (APOL): Increased by 141.8%
XTO Energy (XTO): Increased by 119.5%
Franklin Resources (BEN): Increased by 114.2%
Visa (V): Increased by 92.5%
Sherwin Williams (SHW): Increased by 85.6%, but still only a small portion of their portfolio
Virgin Media (VMED): Increased by 56.7%
Davita (DVA): Increased by 49.6%
Tyco (TYC): Increased by 38.1%
CVS Caremark (CVS): Increased by 22.3%
JPMorgan Chase (JPM): Increased by 20.1%


Some Reduced Positions
Some positions they sold shares in but still own:
Qualcomm (QCOM): Reduced by 83.3%
Lender Processing (LPS): Reduced by 76.9%
Priceline (PCLN): Reduced by 66.8%
Walt Disney (DIS): Reduced by 59%
Ace (ACE): Reduced by 58.6%
Terex (TEX): Reduced by 58.3%
Goldman Sachs (GS): Reduced by 48%
Mastercard (MA): Reduced by 44.8%
DirecTV (DTV): Reduced by 38.7%
Bank of America (BAC): Reduced by 45.5%
Google (GOOG): Reduced by 44.6%
Owens Illinois (OI): Reduced by 25.6%
NRG Energy (NRG): Reduced by 21.8%


Removed Positions
Positions they sold out of completely:
Cognizant Technology (CTSH)
Career Education (CECO)
ThermoFisher Scientific (TMO)
Health Management (HMA)
Covidien (COV)
McKesson (MCK)
American Tower (AMT)
Molson Coors (TAP)
Community Health (CYH)
Coca Cola Enterprises (CCE)
Fifth Third Bancorp (FITB)
Colgate Palmolive (CL)
Popular (BPOP)


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

1. Visa (V): 11.1%
2. Invesco (IVZ): 8.2%
3. JPMorgan Chase (JPM): 5.83%
4. Franklin Resources (BEN): 5.08%
5. Express Scripts (ESRX): 4.75%
6. Apollo Group (APOL): 4.01%
7. CSX (CSX): 3.98%
8. Mastercard (MA): 3.54%
9. DirecTV (DTV): 3.33%
10. Goodrich (GR): 2.68%
11. Google (GOOG): 2.55%
12. Bank of America (BAC): 2.42%
13. Cigna (VI): 2.18%
14. Beckman Coulter (BEC): 2.09%
    
15. AON (AOC): 2.07%
    

One of Viking Global's biggest purchases was a brand new stake in Express Scripts (ESRX) which they brought up to their 5th largest holding. What's interesting here is that Viking was adding in size to multiple names as they were undoubtedly helping the market rally fuel higher in the third quarter. Their most bountiful buys were in Visa, Franklin Resources, Apollo Group, CSX, and Goodrich Corporation, names that are all in their top 10 largest holdings. Their large purchase of CSX was of particular interest given that Warren Buffett's Berkshire Hathaway recently purchased all of fellow railroad Burlington Northern (BNI). Not to mention, the railroads (and CSX in particular) have been ripe with hedge funds as major shareholders previously.

Some notable names they sold completely out of in the third quarter include Cognizant Tech (CTSH), Career Education (CECO), and Thermo Fisher Scientific (TMO). They also sold off shares in the following names but they retained a position: They unloaded some Qualcomm which is notable because it was recently listed as one of the top 10 most popular stocks amongst hedge funds. Additionally, we note their Priceline sale because shares have been ramping higher over the past few months so we could assume they are locking in some profits.

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

(click to enlarge)

And also:

(click to enlarge)

Overall, they were reducing their technology holdings on a quarter over quarter basis. They boosted their exposure to the services sector and kept financials exposure steady. Assets from the collective holdings reported to the SEC via 13F filing were $7.8 billion this quarter compared to $5.7 billion last quarter, so they put a meaningful amount of capital to work on the long side in US equities. 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, again please note that these positions are as of September 30th so two months have elapsed since this disclosure 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 and John Paulson's firm Paulson & Co so check back daily as we'll be posting up a new hedge fund portfolios.