Today we'll be going over the latest from Chase Coleman's hedge fund Tiger Global. In its most recent quarterly letter, Tiger gives us some insight as to its portfolio and performance. Interestingly enough, Tiger's strong performance over the past quarter came entirely from the short side of its portfolio.
We track Tiger due to its strong performance and proven fundamental research methodology. In fact, Tiger Global is one of the hedge funds that comprises the Tiger Cub Portfolio created with Alphaclone... The numbers say it all and Tiger Global's contribution to such a portfolio is one of the many reasons we follow them. We'll provide a full background on Tiger at the bottom of this article, but let's start by getting into the latest updates:
Rarely do you get a glimpse into a hedge fund's coveted short positions, and Tiger is no different. While no specific names are mentioned, Tiger gives us enough clues to where we can make an educated guess as to which stocks the fund is shorting in the current market. While it derived all of its gains from the short side of its portfolio last quarter, Tiger mentions that its shorts have been rallying against them, leaving the fund with gross exposure of 125% and net exposure of -5%. The interesting thing to note here is that despite the rally, Tiger still has conviction on the short side.
In its quarterly letter, Tiger references some of the sectors it is targeting on short side, writing,
"We continue to have high convictiction in our short positions in select financial institutions and REITs. Our financial short exposure consists primarily of US regional banks and European banks with exposures to poorly performing geographies."
Tiger's conviction derives from the fact that non-performing loans are actually increasing. The fund says it is shorting companies with "many multiples of tangible common equity exposed to the worst categories of loans." Essentially, Tiger is wagering that these companies won't be able to escape the massive burden in front of them.
On the REIT side of things, Tiger is focusing mainly on apartments, retail properties, and industrial storage in both Europe and the United States. The fund notes that equity offerings by various REITs have helped recapitalization for now, but Tiger remains short under the notion that the free cash flow of these companies will decrease significantly over the years.
It seems that equity offerings are all the rage in REIT-land these days and stocks of those underlying companies have been rallying... hard. We can only imagine the pain Tiger must be feeling from these names as Wall Street gets high on equity offerings and squeezes the shorts. By far the most interesting thing to take away from this is the fact that despite the rally, Tiger remains short with high conviction.
Tiger is waiting for more attractive multiples and clearer forward earnings before ramping up exposure. But, at the same time, it doesn't want to try and time the market since Tiger is a fundamental investor. It cites the term 'false dawns in bear markets' (a.k.a. bear market rallies) and state that it is very wary of them (hint, hint). Tiger still believes that the deleveraging of both financial institutions' and the consumer's balance sheets is the key. That said, it still likes to focus on company specific situations, rather than the macro picture.
On the long side of the portfolio, Tiger references specific names it owns, seeing how most of that information is already public anyways. (After all, we did cover Tiger's portfolio in our Q4 2008 hedge fund portfolio tracking series). In its letter, Tiger mentions that it is still long Apple (AAPL), Google (GOOG), and Qualcomm (QCOM). It also mentions that it has started a position in Priceline.com (PCLN), citing the company's strong European presence and significant free cash flows. Outside of equities, Tiger also mentions that it has started two nameless positions in corporate credit.
Performance & Exposure
Tiger's first quarter 2009 performance was pretty solid as it was up 6.8% gross for the time period compared to a -11.7% performance for the S&P500 over the same timeframe. Its first quarter Sharpe Ratio was 1.1 and it had a standard deviation of 22.3% compared to S&P 42.1%. As we mentioned above, all of these gains were due to strong performance from the short side of its portfolio. Tiger's long portfolio was down 2.6% for the period, even with strong performances from Mastercard (MA), which Tiger names in particular.
We had just noted that Mastercard was recently removed from Goldman Sachs' Conviction Buy List on the heels of strong earnings. The areas that hurt Tiger's portfolio were its Asian positions and then in the general sectors of Retail and Energy.
Tiger's short exposure to sectors with government intervention have obviously increased its portfolio's volatility and the fund is seeking to reduce the large swings it is seeing. Initially, Tiger tried to combat this with high conviction ideas in a portfolio of low gross exposure. However, it says it will "opportunistically" reduce portfolio themes and exposures should volatility continue to wreak havoc on their consistency.
Chase Coleman is yet another 'Tiger Cub,' or manager who learned their trade under the watch of Julian Robertson while at (now defunct) hedge fund Tiger Management. Coleman attended Williams College and started Tiger Global with the blessing of Julian Robertson. His focus has always been on smaller cap names and on technology. Although, he has since expanded his horizons with time.
In 2007, Tiger Global returned 70%, and from 2001-2007, Coleman bolstered an average return of 47%. And, as we mentioned earlier, Tiger is a part of the Tiger Cub Portfolio created with Alphaclone... In terms of additional activity, we've posted up Tiger's amended 13D filing on Longtop Financial Technologies (LFT) and also its portfolio in entirety. We'll be updating Tiger's complete long portfolio here in about a week and a half, so stay tuned!