Tech Revolution In Billionaire Stephen Mandel’s Lone Pine
The hedge fund Lone Pine Capital, run by Stephen Mandel, a protégé of Julian Robertson, has produced annualised returns of 19.5% since its start. Amidst subpar performance in the first quarter, Mandel's fund has increased profits in 2020. The second quarter recovery and continuation of this momentum into the later part of the year were made possible by Lone Pine Capital's approach of investing in e-commerce and internet companies.
Lone Pine follows a long-short approach, and the fund chooses stocks using both value and growth techniques. The company doesn't keep the position for very long. The top 10 places are held for an average of roughly 4.00 quarters, while the top 20 positions are kept for an average of 4.20 quarters.
Mandel made a 2019 announcement that he would no longer be managing investments for Lone Pine Capital, while he will still serve in that capacity. When it refers to stock selection, the billionaire Stephen Mandel is among the best records.
Lone Pine Capital's Stephen Mandel
Mandel's Lone Pine Capital aims to diversify its holdings by investing in several sectors. The 13F portfolio, however, demonstrates that the hedge fund has not been pursuing outmoded businesses and banking behemoths. The fund has made significant investments in businesses that provide technology advancements and keep up with current digital trends. At the completion of the September quarter, the technology sector made up 46% of the entire 13F portfolio, an increase of 18% from the past quarter.
While Stephen Mandel's reputation is still unblemished, the same cannot be said about the hedge fund sector as a whole because, over the past ten years, its hedged returns have lagged behind the unhedged gains of the market indices. The S&P 500 ETFs, on the other hand, have underperformed by over than 88 percentage points from March 2017, according to research conducted by Insider Monkey. Additionally, we were able to foresee a small number of hedge fund holdings that markedly underperformed the market. Since February 2017, we have tracked and shared the data of these equities, and as of November 16, they had lost 13%. We think investors should give heed to hedge fund sentiment because it is such a valuable signal. To get our stories in your inbox, sign up for our free update on our homepage.
Let's start by looking at the top 10 stock holdings that enabled Lone Pine Capital, owned by billionaire Stephen Mandel, to outperform the general market index.
1. Humana Inc (NYSE:HUM)
Stephen Mandel's hedge fund has gained from Humana's interest in 2020 even if the healthcare company's stock Humana Inc (NYSE: HUM) underperformed in the last three months when compared to the overall market index. Compared to SPY's gain of more than 16% over the past year, the share price of Humana increased by 19%.
In the third quarter of 2018, Lone Pine Capital started a holding in Humana for the first time. Humana made up 3.88% of the total 13F portfolio despite losing a 10% interest in the September 2020 quarter.
Other hedge funds are likewise bullish on Humana, but their positions have somewhat decreased. Just at end of the third quarter of 2020, it was included in the portfolios of 61 hedge funds, decreasing from 75 at the previous peak.
In a note to investors, Daniel Gladis' VLTAVA Fund, a worldwide equities investment fund, singled out a select businesses, like Humana. What VLTAVA Fund said is as follows:
"Humana is gaining from fewer doctor visits, which results in lower insurance payouts for medical care. By the end of the year, this tendency will probably start to gradually return to normal.
2. Amazon, Inc. (NASDAQ: AMZN)
In the September quarter, Stephen Mandel's hedge fund sold 26% of its holdings in Amazon.com (NASDAQ: AMZN) in order to profit from the remarkable share price increase. Amazon's stock price increased 65% over the past year, despite the fact that its shares faltered during the year's fourth period.
At the conclusion of the September quarter, Lone Pine Capital owned 337,308 units of Amazon, or 4.58% of the total portfolio.
One of the top stock picks among hedge funds is Amazon. It is the top-ranked stock among the 30 stocks that hedge funds are most interested in. At the conclusion of the third quarter of 2020, Amazon was held by 245 hedge funds, a little down from the all-time peak of 251.
In a note to investors, L1 Capital International Fund, which had a third-quarter return of 5.1%, emphasised positive features of Amazon. L1 Capital International Fund said the following:
We increased our investment in Amazon by cutting down on a number of technological ventures due to value issues. Both Amazon Web Services and its highly effective flywheel business model are well known. However, we consider that the current share price is undervalued:
- Amazon's major businesses' consistent and long-term growth potential;
- The significance of supplemental revenue sources, such as advertising, which has a high profit margin and is expanding quickly;
- The increasing hurdles to entry and competitive advantages brought about by Amazon's increased investment in infrastructure and other forms of logistics.
3. Amazon.com Inc. (NASDAQ: NFLX)
Netflix (NASDAQ: NFLX) stock declined in 2020's fourth quarter, although hedge fund run by billionaire Stephen Mandel made money from its investment in 2020. In 2020, Netflix share prices increased 61%.
Inside the September quarter, the hedge fund increased its existing investment by 40%. With a 4.85% share of the portfolio, it represents the eighth-largest stock investment in the Lone Pine Capital portfolio.
In a letter to investors, Ensemble Capital, which had a second-quarter return of 22.66%, made comments on a few stocks, particularly Netflix. What Ensemble Capital said is as follows:
"Netflix, Inc. (8.5% weight in portfolio): We've previously discussed our Netflix theory, but now we'll focus on the economic and competitive capabilities that Netflix has shown since we last discussed the company a few years ago, particularly in light of the anticipated competition that has actually reached from traditional media corporations launching their own online streaming, like Disney. In addition, the emergence of the COVID-19 pandemic around the world has led to accelerating benefits for digital entertainment and global production.”
4. Global Payments Inc. (NYSE: GPN)
Stephen Mandel's hedge fund looks bullish over the future fundamentals of Global Payments Inc. (NYSE: GPN) as the fund has raised its position by 33% in the September quarter. Share of Global Payments rallied more than 9% in the last three months, but its stock price gains of 5.69% in the last twelve months underperformed compared to the S&P 500 growth of over 16%.
Global Payments was in 57 hedge funds’ portfolios at the end of September, down from the all-time high of 68. Artisan Mid Cap Fund has highlighted a few stocks including Global Payments in an investor’s letter. Here is what Artisan Mid Cap Fund stated:
“Shares of Global Payments have been pressured amid clear indications that COVID-19 restrictions are having a disruptive impact across many of their businesses. Throughout our long holding period, we have been impressed by management’s progress in building a fast-growing, diversified, more recurring business at the intersection of many strong trends in payments and software. We believe these characteristics position it quite well to weather almost any type of recession. But in the current (unprecedented) environment, many of its customers are closed or severely restricted, and its diversification across geographies such as the US, United Kingdom and Spain isn’t of much benefit either. While we believe short-term earnings will fall far short of initial expectations, we have confidence in management’s nimble response to challenges historically, its healthy balance sheet, and our thesis that once the economy begins to reopen, Global Payments’ positive profit cycle will resume. As such we have maintained our position.”
5. PayPal Holdings, Inc. (NASDAQ: PYPL)
Lone Pine Capital has sold 18% of its PayPal (NASDAQ: PYPL) position during the third quarter to capitalize on significant share price gains.
Shares of PayPal soared 20% in the last three months and it is up 110% in the last twelve months. Billionaire Stephen Mandel's hedge fund held 6,000,915 shares of PayPal at the end of the third quarter, accounting for 5.10% of the portfolio. It is the sixth-largest stock holding of Lone Pine’s 13F portfolio.