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Tuesday, May 6, 2014

Chris Shumway: Short CNH, Long Moody's (Sohn Conference Presentation)

We're posting up notes from the Sohn Investment Conference in New York, produced in partnership with Bloomberg LINK. Next up is Chris Shumway of Shumway Capital. He pitched shorting the deliverable forward version of Chinese currency (CNH) and also pitched Moody's (MCO) as a long.

Chris Shumway's Sohn Conference Presentation

Shumway: Was at Tiger until 2002. Grew funds to $8B, CAGR of 17%. Now runs his own investments and seeds new funds. First time speaker. Returned outside money in 2011, time horizon has extended - now does some private investments.

His macro views: his main concern is if the global economy got going too quickly, inflation could take off which would choke off the whole cycle. China deflation was good, because it meant the economy could grow, disinflationary for a long time. Now "it feels a little bit strange out there." Especially the damage to the growth stocks which have gotten crushed on no short-term valuation support.

Three big areas of concern now:

1. The Fed. Yellen dashed hopes of "considerable time" to making it 6 months before taper happens quickly.

2. Russia. Putin. Risks are real. A big risk, that is mispriced.

3. China. China growth is slowing. Massive excess credit growth, 11% more than GDP. Over time, it should be the same. This is unsustainable. Non-performing loans have skyrocketed. Shadow banking is 44% of credit growth. Much of the projects have no return.

IDEA 1: Short the CNH. (deliverable forward version of Chinese currency.) Tracks the CNY with very little variation. They have limited stimulus options left, and they all lead to more non-performing loans. Says GDP is growing 6% and decelerating, not the 7% stated. Simplest way to fix this is currency devaluation. Did this in 1994, from 5.5 to 9 CNY to the dollar.

IDEA 2: Moody's. MCO. Long term after tax returns. Ratings agency, and Investors Services. A great business, straightforward story. Global duopoly, with third player Fitch. Unrated debt costs you 150 bps in yield, costs only 5 bps to get rated. 81% ROE over last 10 years. Moodys covers 95% of the companies, S&Ps covers 92%, Fitch does 50%.

Key: "It's a Bloomberg-like business." Huge cost to have all the data, and they have it.   Corporate EBITDA growth grows at GDP,4%, pricing 4-6% per year. Europe adds 2-3%. Get 10-13% revenue grower, with 100bps operating margin expansion. Gets you operating income growth of 14-17%, 5% buyback, plus dividend gets 19-22% total return. Bear case:     1. Litigation. 6 years since Lehman crisis and still no lawsuit. (S&P had it)     2. Revenue growth rate is decelerating due to tougher comps.   Price target is $143 base, $171 upside.

Be sure to check out the rest of the presentations from the 2014 Sohn Investment Conference.

Friday, February 4, 2011

Shumway Capital Returns Capital to Investors, Will Manage Internal Assets

Chris Shumway's hedge fund Shumway Capital Partners sent out a letter to investors today notifying them that the fund will be returning capital to outside investors. The firm will live on, instead only managing internal capital. Shumway, who has seen 17% annual returns, is one of the widely regarded Tiger Cub hedge funds started by former members of Julian Robertson's Tiger Management.

Late last year, Chris Shumway announced that he would be stepping down from his Chief Investment Officer role. This initiated a wave of redemptions as investors in the funds became wary. Shumway writes,

"In a sense, these changes created more risk for many of you who committed to stay invested in SCP and makes short term results of the fund a primary issue for us all. As a result, it has become more difficult for us to focus on long term investing as we have for the last nine years, which I believe has been a main driver of our success."

It's obvious from the above that Shumway is not fond of Wall Street's and an investor's focus on short-term performance. We'd venture to guess that Shumway also somewhat tired of the 'corporate' nature of running a large investment firm. Catering to each investor's concerns meant less and less of his time was dedicated to investing.

Shumway isn't alone in his desire to focus on investing for the long-term. Fellow Tiger Cub manager Roberto Mignone of Bridger Management closed to new investors, effectively capping assets under management so that he could focus on investing rather than having to worry about running a large organization.

It will be interesting to see who stays behind at Shumway to manage internal capital and who leaves to start their own funds. There are already a few notable Shumway alums managing their own funds including John Thaler's JAT Capital, Anu Murgai's Suranya Capital Partners, and Matthew Crakes' Greenhart Capital. The reason we mention these established and potentially future Shum-alum funds is that some former SCP investors could potentially allocate capital there.

Shumway will return outside capital by the end of the first quarter, which undoubtedly means they'll be selling partial positions. Here are Shumway's top 10 holdings as of September 30th, 2010. We'll get an updated look at their holdings here in a few weeks, so keep in mind the below is quite dated:

1. Apple (AAPL)
2. Citigroup (C)
3. Priceline.com (PCLN)
4. Pfizer (PFE)
5. Las Vegas Sands (LVS)
6. Baidu (BIDU)
7. SPRD Gold Trust (GLD)
8. Target (TGT)
9. Air Products & Chemicals (APD)
10. BP (BP)

A screenshot of Chris Shumway's letter is posted below via ZeroHedge:

(click to enlarge)

It will be interesting to see what happens to Shumway's portfolio once outside capital has been returned and the fund is only managing internal capital.

Wednesday, June 2, 2010

Hedge Fund Shumway Capital Partners Adds Large New Stakes in Kraft Foods, Comcast (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 Chris Shumway's hedge fund Shumway Capital Partners. Prior to founding his firm, Shumway was previously one of Julian Robertson's right-hand men at legendary hedge fund Tiger Management. As such, he joins the other successful Tiger Cubs and is included in the Tiger Cub portfolio created with Alphaclone for hedge fund replication. Shumway Capital Partners focuses on intensive fundamental research to drive their long/short equity strategy. Back in 2009, Shumway was listed in Barron's top 100 hedge funds for 2009 with a rolling 3-year annualized return of 28%. However, 2010 has proven difficult for the firm as their Sakkonet Fund was down 10% in May after they had gained 4.3% through April. Shumway received his MBA from Harvard Business School and his undergraduate degree from the University of Virginia.

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
Kraft Foods (KFT)
Comcast (CMCSA)
Air Products & Chemicals (APD)
Bank of America (BAC)
General Dynamics (GD)
Bard (BCR)
Staples (SPLS)
Liberty Global (LBTYA)
CME Group (CME)
Comcast (CMCSK)
TD Ameritrade (AMTD)
Illumina (ILMN)
Lowe's (LOW)
Discovery Communications (DISCA)
Cablevision (CVC)
Hartford Financial (HIG)
Sigma Aldrich (SIAL)
Waters (WAT)
Annaly Capital Management (NLY)
Credit Suisse (CS)
Liberty Global (LBTYK)
Illinois Toolworks (ITW)
SBA Communications (SBAC) Notes

Increased Positions
Novo (NVO): Increased position size by 413.8%
Goldman Sachs (GS): Increased by 275.4%
Baidu (BIDU): Increased by 85.4%
Apple (AAPL): Increased by 62.4%
Cisco Systems (CSCO): Increased by 57.2%
Disney (DIS): Increased by 47.6%
PNC Financial (PNC): Increased by 32.2%
Ingersoll-Rand (IR): Increased by 28.5%
Pfizer (PFE): Increased by 21.1%

Reduced Positions
Wells Fargo (WFC): Reduced position by 74.7%
Omnicom Group (OMC): Reduced by 70.8%
Juniper Networks (JNPR): Reduced by 62.4%
Pepsico (PEP): Reduced by 61.4%
Las Vegas Sands (LVS): Reduced by 60.2%
Urban Outfitters (URBN): Reduced by 57.9%
St Jude Medical (STJ): Reduced by 54.8%
Ctrip (CTRP): Reduced by 53.7%
JPMorgan Chase (JPM): Reduced by 45.8%
Gap (GPS): Reduced by 41.9%
Mastercard (MA): Reduced by 36.4%
Johnson & Johnson (JNJ): Reduced by 24.7%
Quest Diagnostics (DGX): Reduced by 22.9%
Visa (V): Reduced by 22.6%
Salesforce.com (CRM): Reduced by 15.4%

Positions They Sold Out of Completely
Qualcomm (QCOM)
Qualcomm (QCOM) Calls
Select Sector Financials (XLF) Calls
EMC (EMC)
Freeport McMoran (FCX)
Brocade Communications (BRCD)
Colgate Palmolive (CL)
CVS Caremark (CVS)
Radioshack (RSH)
Memc Electronics (WFR)
Fifth Third (FITB)
Allstate (ALL)
AOL (AOL)
Monsanto (MON)
Research in Motion (RIMM)
NII Holdings (NIHD) Notes
Kinross Gold (KGC) Notes
BioMarin Pharmaceutical (BMRN) Notes

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

1. Apple (AAPL): 9.5%
2. Disney (DIS): 5.8%
3. Cisco Systems (CSCO): 5.3%
4. Kraft Foods (KFT): 5.3%
5. Teva Pharmaceuticals (TEVA): 5.3%
6. Pfizer (PFE): 4.6%
7. Equinix (EQIX): 4.5%
8. Goldman Sachs (GS): 3.9%
9. Time Warner (TWX): 3.7%
10. Johnson & Johnson (JNJ): 3.5%
11. Comcast (CMCSA): 2.7%
12. Visa (V): 2.5%
13. Baidu (BIDU): 2.4%
14. Mastercard (MA): 2.2%
15. JPMorgan Chase (JPM): 2.1%

Shumway's biggest portfolio change was their new position in Kraft Foods (KFT) as it is now their fourth largest US equity long. Numerous other hedgies like KFT these days, including Bill Ackman who previously detailed his investment thesis on Kraft. Additionally, Shumway started quite a sizable stake in Comcast (via CMCSA and CMCSK). They were also out adding to some of their mainstay holdings such as Apple, Cisco Systems, Disney, and Pfizer.

We also wanted to point out that their Equinix (EQIX) position listed above is only their equity stake. Shumway also holds various notes and their aggregate exposure to EQIX actually makes it one of their largest positions (slightly smaller than the size of their CSCO stake). And if you hadn't already noticed, many stocks in their portfolio are those on Goldman Sachs' VIP list of stocks most important to hedge funds. Maybe that helps explain their poor performance in the month of May.

On the selling side of things, Shumway Capital Partners was also somewhat active. In the fourth quarter of 2009, we saw that Shumway was betting big on Wells Fargo (WFC). Well, that certainly changed quickly as they dumped almost 75% of their position in the first quarter of 2010. However, in the financial sector they added to their stakes in Goldman Sachs and PNC Financial. Additionally, they sold completely out of hedge fund favorite stocks Qualcomm, EMC, Research in Motion and Freeport McMoran. It was also interesting to see Shumway sell out of CVS Caremark as we've seen some other hedge fund managers bullish on CVS shares as of late.

Assets reported on Shumway's 13F filing were $7.9 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 14 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, Phil Falcone's Harbinger Capital Partners, and David Stemerman's Conatus Capital. Be sure to check back daily for new hedge fund updates.

Wednesday, February 24, 2010

Shumway Capital Partners Bets Big On Wells Fargo (WFC): 13F Filing

Bank of America preferreds (BAC-S): 5.97%
Apple (AAPL): 5.4%
Wells Fargo (WFC): 5.3%
Johnson & Johnson (JNJ): 4.7%
Teva Pharmaceutical (TEVA): 4.7%
Equinix (EQIX): 4.6%
Pepsico (PEP): 4.3%
Pfizer (PFE): 4.1%
Walt Disney (DIS): 3.8%
Time Warner (TWX): 3.8%
Qualcomm (QCOM): 3.8%
JPMorgan Chase (JPM): 3.7%
Mastercard (MA): 3.7%
EMC (EMC): 3.2%
Freeport McMoran (FCX): 3.2%

Of Shumway's top holdings, four of them were brand new stakes: Bank of America preferreds, Johnson & Johnson, Pfizer, and Freeport McMoran. Take note that they completely dumped their BAC common stock and bought the Bank of America preferred on the offering, a trend we've seen many hedge funds take advantage of.

Looking over their portfolio though, it has a multinational blue-chip feel to it. What's interesting is that in the quarter prior they had purchased blue-chip stocks as well. This time around though, they were largely selling off those blue-chips and buying new blue-chip names. Shares of JNJ, PEP, and PFE find a place in Shumway's portfolio and are the definition of these 'safer' plays that are seemingly undervalued on a relative basis. We've seen this mantra out of numerous other hedge funds as they note 'junk' high beta stocks rallied the most during 2009, leaving solid blue-chip companies behind. As such, many hedgies have rotated into these multinational stocks for 2010, a year in which many think we'll see tepid growth.

It's also interesting to see hedge funds return to old favorite Freeport McMoran. Hedgies loved this play pre-crisis but dumped shares in a hurry once the global economy started heading south. It looks like some funds are starting to dip their toe back in the water with this name. Turning to financials, we also saw Shumway massively boost their holdings in Wells Fargo (WFC), something we've started to see more and more hedge funds do as of late as well.

Shumway dumped stakes in SBA Communications and American Tower, a move we found intriguing solely because tower stocks have been some of the most popular stocks amongst Tiger Cub hedge funds. Additionally, Shumway's sale of Google made us take notice as shares of the internet giant slowly seem to have fallen out of favor with many hedgies.

Data used for this article comes from Alphaclone. Using their hedge fund replicators, you can backtest strategies and sort through all the hedge fund portfolio maneuvers with ease, we highly recommend it. Assets reported on Shumway's 13F filing were $8.6 billion this quarter compared to $7.4 billion last quarter, so quite a noticeable uptick in assets. Remember that these filings are not representative of the hedge fund's entire base of AUM.

We'll be tracking 40+ prominent funds in our fourth quarter 2009 hedge fund portfolio tracking series. We've already covered Seth Klarman's Baupost Group, Mohnish Pabrai's Investment Fund, Carl Icahn's hedge fund Icahn Partners, David Einhorn's Greenlight Capital, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, David Tepper's Appaloosa Management, Warren Buffett's portfolio, John Paulson's hedge fund Paulson & Co, Lee Ainslie's Maverick Capital, Dan Loeb's Third Point, Eddie Lampert's RBS Partners, and David Ott's Viking Global. Check back daily for our new updates.

Monday, December 28, 2009

Shumway Capital Partners Adds Long Exposure Via Blue Chip 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 in our series is Chris Shumway's hedge fund firm, Shumway Capital Partners. Chris Shumway runs an $8+ billion hedge fund and is best known for intensive fundamental research to create long/short equity portfolios. He is a 'Tiger Cub' because he formerly served as Julian Robertson's right-hand man while at Tiger Management. Taken from our post on 'Tiger Cub' biographies, "Chris Shumway is the Founding Partner of Shumway Capital Partners (“SCP”), an investment management firm founded in 2001. SCP, which manages a multibillion dollar group of private investment funds, uses a private equity-like research model for public market investment on a global basis. Prior to forming SCP, Mr. Shumway was a Senior Managing Director at Tiger Management (1992-1999), an Analyst at Brentwood Associates (1990-1991), and an Analyst at Morgan Stanley & Co. (1988-1990). He received an M.B.A. from Harvard Business School (1993) and a B.S. from the McIntire School of Commerce at the University of Virginia (1988)."

Shumway has an solid performance record since inception and a rolling 3-year annualized return of 28+%. Shumway's performance at this metric landed them at #11 in Barron's top 100 hedge funds for 2009. Shumway's portfolio is one of the hedge funds included in our Market Folly portfolio that replicates hedge fund portfolios. It was created with Alphaclone and has over 25.5% annualized returns.

Keep in mind that the positions listed below were their 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:
Yum Brands (YUM)
Pepsico (PEP)
Colgate Palmolive (CL)
Procter & Gamble (PG)
Walt Disney (DIS)
JPMorgan Chase (JPM)
Zimmer Holdings (ZMH)
Google (GOOG)
Google (GOOG) Calls
Cemex (CX)
Bard (BCR)
Time Warner (TWX)
PNC Financial (PNC)
CTrip (CTRP)
Charles Schwab (SCHW)
Laboratory Corp (LH)
Weatherford International (WFT)
Nordstrom (JWN)
Omnicom (OMC)
BB&T (BBT)
American Tower (AMT)
Quest Diagnostic (DGX)
Ingersoll-Rand (IR)
CSX (CSX)

Some Increased Positions
Positions they already owned but added shares to:
Visa (V): Increased position by 400%
Juniper Networks (JNPR): Increased by 242.4%
Las Vegas Sands (LVS): Increased by 183.8%
Wyeth (WYE): Increased by 173.9%
Qualcomm (QCOM): Increased by 147.7%
Goldman Sachs (GS): Increased by 140.9%
Walgreen (WAG): Increased by 36.2%
Equinix (EQIX): Increased by 35.5%
Waters (WAT): Increased by 30.5%
EMC (EMC): Increased by 26.4%

Some Reduced Positions
Stakes they sold shares in but still own:
SBA Communications (SBAC): Reduced position by 58.8%
Bank of America (BAC): Reduced by 38.4%
Wells Fargo (WFC): Reduced by 28.1%
Mastercard (MA): Reduced by 21.2%
Urban Outfitters (URBN): Reduced by 19.7%

Removed Positions
Positions they sold out of completely:
Priceline (PCLN)
CVS Caremark (CVS)
Pfizer (PFE)
Research in Motion (RIMM)
RenaissanceRe (RNR)
Entergy (ETR)
Annaly Capital Management (NLY)
Bank of America (BAC) Calls
D&B (DNB)
Crown Castle (CCI)
Partnerre (PRE)
Arch Capital Group (ACGL)
Covance (CVD)
Nii Holdings (NIHD) Bonds
Cisco Systems (CSCO) Calls
Netease (NTES)
Citigroup (C)
Blackboard (BBBB) Bonds

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

Cisco (CSCO): 4.62%
Equinix (EQIX): 4.29%
EMC (EMC): 4.08%
Mastercard (MA): 3.93%
Teva Pharmaceutical (TEVA): 3.88%
Visa (V): 3.87%
Apple (AAPL): 3.68%
Bank of America (BAC): 3.37%
Juniper (JNPR): 2.96%
Yum Brands (YUM): 2.81%
Pepsico (PEP): 2.74%
Colgate Palmolive (CL): 2.73%
Procter & Gamble (PG): 2.71%
Qualcomm (QCOM): 2.47%
Walgreen (WAG): 2.46%

The main thing to takeaway from Shumway Capital Partners' portfolio update is that they increased long US equities exposure. And, the interesting thing is that it was mainly via brand new positions, many in large cap, blue-chip names including Yum Brands, Pepsico, Colgate Palmolive, Procter & Gamble, and more.

Shumway's top three holdings are very concentrated in the tech trade and in particular, data. They increased their positions in EMC and EQIX by over 25% each. One name they really boosted was Visa (V) as they added to it by a whopping 400%. Additionally, they increased stakes in Juniper Networks and Las Vegas Sands by sizable amounts. They sold completely out of Priceline (PCLN), CVS Caremark (CVS), Pfizer (PFE), and Research in Motion (RIMM) all positions that had previously been over 2% of their reported 13F assets.

They decreased their holdings in technology and increased their stake in services. Below you'll find graphical representations of the recent shifts in Shumway Capital Partners' portfolio courtesy of Drew Robertson at Financial Research Station:

(click to enlarge)

Assets from the collective holdings reported to the SEC via 13F filing were $7.4 billion this quarter compared to $4.4 billion last quarter, so a substantial amount of capital was deployed on the long side. 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, Lee Ainslie's Maverick Capital, Andreas Halvorsen's Viking Global, Chase Coleman's Tiger Global, Brett Barakett's Tremblant Capital, and John Griffin's Blue Ridge Capital. Check back daily as we'll be covering new hedge fund portfolios.

Tuesday, September 29, 2009

Shumway Capital Partners Jumps Into Bank of America (BAC), Joining Other Hedge Funds in Q2 (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.

It's been a week or two since we last checked in on 13F filings and our apologies for those of you anxiously awaiting the next installment. Unfortunately, there has been such a slew of 13D and 13G filings from various funds we track that we have been swamped. However, we are here again to cover a few more funds via 13F to give you an entire portfolio snapshot of their long US equity positions. The last manager we covered in our 13F analysis was Bret Barakett and Tremblant Capital Group. This time around, we'll kick it back off with Chris Shumway's hedge fund, Shumway Capital Partners.

Chris Shumway runs a $5 billion hedge fund and is best known for intensive fundamental research to create long/short equity portfolios. He is a 'Tiger Cub' because he formerly served as Julian Robertson's right-hand man while at Tiger Management. Taken from our post on 'Tiger Cub' biographies, "Chris Shumway is the Founding Partner of Shumway Capital Partners (“SCP”), an investment management firm founded in 2001. SCP, which manages a multibillion dollar group of private investment funds, uses a private equity-like research model for public market investment on a global basis. Prior to forming SCP, Mr. Shumway was a Senior Managing Director at Tiger Management (1992-1999), an Analyst at Brentwood Associates (1990-1991), and an Analyst at Morgan Stanley & Co. (1988-1990). He received an M.B.A. from Harvard Business School (1993) and a B.S. from the McIntire School of Commerce at the University of Virginia (1988)." Shumway has an impressive track record since inception and has a rolling 3 year annualized return of well over 28%. Using this metric to rank hedge funds, Shumway's performance landed them at #11 in Barron's top 100 hedge funds for 2009.

That performance speaks for itself and we are proud to include Shumway in our custom Market Folly portfolio which invests in hedge fund holdings. Our unique hedge fund clone has seen a total return of over 500% since 2000, compared to a return of only -18.4% for the S&P 500. We created the portfolio with Alphaclone and combined 3 top hedge fund managers into one cohesive portfolio that is seeing fantastic results. Shumway is definitely a big part of those results and so let's see what their portfolio holds this time around.

The following were their 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):
Bank of America (BAC), Apple (AAPL), Priceline (PCLN), Baidu (BIDU), Wells Fargo (WFC), Urban Outfitters (URBN), Research in Motion (RIMM), Allstate (ALL), Community Health (CYH), Universal Health (UHS), Monsanto (MON), Juniper Networks (JNPR), Waters (WAT), Entergy (ETR), Annaly Capital (NLY), Bank of America (BAC) Calls, D&B (DNB), Goldman Sachs (GS), Crown Castle (CCI), Equinix Bonds, Las Vegas Sands (LVS), Covance (CVD), Novo Nordisk (NVO), Cisco Systems (CSCO) Calls, Netease (NTES), & Blackboard Bonds.

Some Increased Positions (A few positions they already owned but added shares to)
NII Holdings Bonds: Increased by 130% - but still only 0.32% of overall reported assets
SBA Communications (SBAC): Increased by 100.6%
Partnerre (PRE): Increased by 96%
Union Pacific (UNP): Increased by 71.6%
Renaissance Re (RNR): Increased by 58.3%
Mastercard (MA): Increased by 41.2%
EMC (EMC): Increased by 27%
Equinix (EQIX): Increased by 22.7%
Cisco Systems (CSCO): Increased by 18.7%

Some Reduced Positions (Some positions they sold some shares of)
Wyeth (WYE): Reduced by 92.8%
Visa (V): Reduced by 60.6%
CVS Caremark (CVS): Reduced by 31.6%
Teva Pharma (TEVA): Reduced by 27.2%
Qualcomm (QCOM): Reduced by 21.3%

Removed Positions (Positions they sold out of completely)
Microsoft (MSFT)
American Tower (AMT)
Walmart (WMT)
Zimmer Holdings (ZMH)
Disney (DIS)
Costco (COST)
iShares Emerging Markets (EEM)
JPMorgan Chase (JPM)
Hudson City Bancorp (HCBK)
International Game Technology (IGT)
Potash (POT)
Equinix Bonds
SBA Communications Bonds

Top 15 Holdings by percentage of assets reported on 13F filing *(see note below regarding calculations)

Bank of America (BAC): 7.2%
Mastercard (MA): 6.95%
Cisco Systems (CSCO): 6.65%
Teva Pharmaceuticals (TEVA): 5.74%
St Jude Medical (STJ): 4.6%
Apple (AAPL): 4.43%
Equinix (EQIX): 4.2%
EMC (EMC): 4.2%
Priceline (PCLN): 3.4%
CVS Caremark (CVS): 2.97%
Qualcomm (QCOM) Calls: 2.9%
Baidu (BIDU): 2.8%
Pfizer (PFE): 2.8%
Union Pacific (UNP): 2.7%
Wells Fargo (WFC): 2.7%

What sticks out right away about Shumway's portfolio is the fact that they added Bank of America (BAC) as a brand new position and brought it all the way up to their top holding. Not to mention, they also added call options on the name and even opened a position in Wells Fargo (WFC) too. With that, Shumway now joins the countless other prominent hedge funds involved in the financials trade over the past quarter. We want to insert a note of caution not to necessarily read too much into this for a few reasons. Firstly, this could have been purely a trade and they could possibly have already sold some (or all) of the position. Secondly, since their 13F shows their positions as of June 30th, a solid 3 months have elapsed since this disclosure and you need to be cognizant of this. Shares of BAC are up over 30% since the end of June. We're simply here to share the data and many are questioning as to whether or not many of these prominent hedge funds will just trade these financial positions or hold them for a longer period of time. Unfortunately, we'll just have to wait and see. They also added brand new positions in Apple (AAPL) and Priceline (PCLN) and brought those stakes up to the 6th largest and 9th largest holdings respectively. These names definitely fit the bill as part of a 'typical hedge fund portfolio' as noted when Goldman Sachs examined hedge fund holdings.

In terms of positions they already held, they boosted their #2 holding Mastercard (MA) by over 40%. Additionally, they upped their Union Pacific (UNP) stake by over 70%. On the selling side of things, they reduced their 4th largest position Teva (TEVA) by almost 30% and they cut their CVS Caremark (CVS) stake by over 30%. Other sales worth highlighting are their distribution of 60% of their Visa (V) position and the fact that they also dumped over 90% of their Wyeth (WYE) position. Their Visa movement is all the more interesting when you combine that with what they did with Mastercard. It appears that they favor MA over V, at least for now. This is intriguing because typically, the hedge funds we track have owned roughly the same amount of both the payment processors.

Some notable names they sold completely out of include former holdings Microsoft (MSFT), American Tower (AMT), and Walmart (WMT). Overall though, due to their increase in assets, Shumway was out adding a bevy of brand new positions in the second quarter. That about wraps up all the major moves in their portfolio. For more on Shumway's performance and how you can replicate their portfolio, check out our Market Folly custom portfolio.

*Note regarding portfolio percentages: Assets from the collective holdings reported to the SEC via 13F filing were $4.4 billion this quarter compared to $3.1 billion last quarter, so quite a noticeable uptick in holdings. 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. In reality, the percentages are more watered down in their actual hedge fund portfolio. If you were to calculate percentage weightings in the actual hedge fund, they would obviously be lower since you would divide position sizes by their total assets under management (a larger number than the one reported on the 13F).

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, and Stephen Mandel's Lone Pine Capital, George Soros (Soros Fund Management), Lee Ainslie's Maverick Capital, Philip Falcone's Harbinger Capital Partners, David Stemerman's Conatus Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, Thomas Steyer's Farallon Capital, Boone Pickens' BP Capital Management, Ken Griffin's Citadel Investment Group, and Bret Barakett's Tremblant Capital Group. Check back each day as we cover prominent hedge fund portfolios.

Tuesday, June 9, 2009

Shumway Capital Partners (Chris Shumway) Boosts Teva Pharma (TEVA) & Cisco (CSCO) Stakes: 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 is Shumway Capital Partners run by Chris Shumway. Shumway started his own fund after leaving well-known Julian Robertson 's Tiger Management. Thus, as a progeny of Robertson, he is a part of what people call the 'Tiger Cubs' (people who have started their own firms after succeeding at Tiger). Shumway became Robertson's right-hand man after former #2 John Griffin left to start Blue Ridge Capital. We've already covered many of the 'Tiger Cub' funds in our series including Stephen Mandel's Lone Pine Capital, Andreas Halvorsen's Viking Global, and Lee Ainslie's Maverick Capital.

Taken from our post on 'Tiger Cub' biographies, "Chris Shumway is the Founding Partner of Shumway Capital Partners (“SCP”), an investment management firm founded in 2001. SCP, which manages a multibillion dollar group of private investment funds, uses a private equity-like research model for public market investment on a global basis. Prior to forming SCP, Mr. Shumway was a Senior Managing Director at Tiger Management (1992-1999), an Analyst at Brentwood Associates (1990-1991), and an Analyst at Morgan Stanley & Co. (1988-1990). He received an M.B.A. from Harvard Business School (1993) and a B.S. from the McIntire School of Commerce at the University of Virginia (1988)." In the past at a 'Tiger Cub' hedge fund manager panel, Shumway suggested that buying stocks that were down largely due to hedge fund liquidations would be a winning strategy longer-term. Lastly, in terms of more recent activity, Shumway has filed a 13G on Equinix (EQIX).

Recently, Shumway Capital Partners was ranked #11 in Barron's top 100 hedge fund rankings for 2009; an impressive feat. Barron's list is ranked according to a rolling 3 year annualized return and Shumway has seen a 28.7% annualized performance by this metric.

Shumway's solid performance and stock picking has landed them in our custom Market Folly portfolio, created with Alphaclone. Our portfolio (which has Shumway's stock picks in it, amongst others) is up 14.4% year-to-date for 2009 and has seen 19.8% annualized returns since mid-2002. The numbers are quite impressive and it speaks to the success Shumway has had since striking out on his own. With that in mind, let's check out their portfolio.

The following were Shumway'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):
Wyeth (WYE), Microsoft (MSFT), Pfizer (PFE), Walmart (WMT), Walgreens (WAG), Zimmer Holdings (ZMH), Disney (DIS), Costco (COST), Ishares Emerging Markets (EEM), RenaissanceRe (RNR), Arch Capital (ACGL), JPMorgan Chase (JPM), Hudson City Bancorp (HCBK), International Game Technology (IGT), Partnerre (PRE), & Citigroup (C).

Some Increased Positions (A few positions they already owned but added shares to)
Cisco Systems (CSCO): Increased by 15,982% (their position quarter prior was tiny)
EMC (EMC): Increased by 8,821%
Potash (POT): Increased by 968%
SBA Communications (SBAC): Increased by 633%
Teva Pharma (TEVA): Increased by 615%
CVS Caremarkt (CVS): Increased by 533%
Qualcomm (QCOM): Increased by 189%
Equinix (EQIX): Increased by 103%
Union Pacific (UNP): Increased by 91%
Savvis (SVVS) Bonds: Increased by 67%
Mastercard (MA): Increased by 50%
American Tower (AMT): Increased by 43%
St Jude Medical (STJ): Increased by 38%

Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Qualcomm (QCOM) Calls: Reduced by 41%

Removed Positions (Positions they sold out of completely)
Biogen Idec (BIIB), Waters (WAT), News Corp (NWS-A), Thermo Fisher Scientific (TMO), Stryker (SYK), Hansen Natural (HANS), Celanese (CE), Cogent (CCOI) Calls, & NII Holdings (NIHD).

Top 15 Holdings (by % of portfolio)

Teva Pharma (TEVA): 10.2% of portfolio
Wyeth (WYE): 7.6% of portfolio
Cisco Systems (CSCO): 7.1% of portfolio
Mastercard (MA): 7% of portfolio
St Jude Medical (STJ): 6.15% of portfolio
CVS Caremark (CVS): 5.3% of portfolio
Microsoft (MSFT): 4.11% of portfolio
EMC (EMC): 4% of portfolio
Visa (V): 3.77% of portfolio
Equinix (EQIX): 3.76% of portfolio
American Tower (AMT): 3.7% of portfolio
Pfizer (PFE): 3.65% of portfolio
Walmart (WMT): 3.64% of portfolio
Walgreens (WAG): 3.6% of portfolio
Qualcomm (QCOM) Calls: 3.5% of portfolio

The biggest story here is their massive additions to their Teva Pharma (TEVA) and Cisco Systems (CSCO) positions. They increased their TEVA stake by over 600% and brought it up to their largest holding. Their CSCO stake is now their 3rd largest after boosting their position by almost 16,000%. Like Maverick Capital who we just looked at last week, Shumway has also started a nice sized position in Walgreens (WAG). Maverick has much more conviction in the name though, as they brought it up to their top holding, while Shumway holds it at their #14 slot.

Additionally, we see yet another hedge fund that has entered the Wyeth (WYE) trade to the long side in an effort to game the merger arbitrage/event-driven strategy. Two positions worth noting that they sold completely out of are Biogen Idec (BIIB) and Waters (WAT). Previously, those positions had been 9.6% and 6.7% positions for Shumway, which was pretty substantial. But, they no longer own those names as Shumway's portfolio turnover is somewhat more frequent than other typical fundamental funds we follow. Lastly, we want to highlight that Shumway is obviously bullish on both Mastercard (MA) and Visa (V), along with numerous other hedge funds. In particular, we've noticed a lot of the 'Tiger Cub' funds holding shares of these payment processors.

Assets from the collective holdings reported to the SEC via 13F filing were $3.1 billion this quarter compared to $1 billion last quarter, as they put a substantial amount of capital to work on the long side of their portfolio, tripling their exposure. As you can tell from the 'increased positions category, they were definitely out adding across the board to portfolio names they already owned. And, they started brand new large positions in Wyeth (WYE) and Microsoft (MSFT) as well.

Their purchases will have proved to be very timely as the market has rallied substantially. It will be interesting to see if/when they decide to reduce some long exposure after so heavily beefing it up this past quarter. This 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, Timothy Barakett's Atticus Capital, Lee Ainslie's Maverick Capital, and Raj Rajaratnam's Galleon Group.

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