Shumway Beefs Up Teva, Cisco Positions

by: Market Folly

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 (NASDAQ: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 it 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 Shumway's 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 Shumway initiated in the last quarter):
Wyeth (WYE), Microsoft (NASDAQ:MSFT), Pfizer (NYSE:PFE), Walmart (NYSE:WMT), Walgreens (WAG), Zimmer Holdings (ZMH), Disney (NYSE:DIS), Costco (NASDAQ:COST), Ishares Emerging Markets (NYSEARCA:EEM), RenaissanceRe (NYSE:RNR), Arch Capital (NASDAQ:ACGL), JPMorgan Chase (NYSE:JPM), Hudson City Bancorp (NASDAQ:HCBK), International Game Technology (NYSE:IGT), Partnerre (NYSE:PRE), & Citigroup (NYSE:C).

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

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

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

Top 15 Holdings (by % of portfolio)

  1. Teva Pharma (TEVA): 10.2% of portfolio
  2. Wyeth (WYE): 7.6% of portfolio
  3. Cisco Systems (CSCO): 7.1% of portfolio
  4. Mastercard (MA): 7% of portfolio
  5. St Jude Medical (STJ): 6.15% of portfolio
  6. CVS Caremark (CVS): 5.3% of portfolio
  7. Microsoft (MSFT): 4.11% of portfolio
  8. EMC (EMC): 4% of portfolio
  9. Visa (NYSE:V): 3.77% of portfolio
  10. Equinix (EQIX): 3.76% of portfolio
  11. American Tower (AMT): 3.7% of portfolio
  12. Pfizer (PFE): 3.65% of portfolio
  13. Walmart (WMT): 3.64% of portfolio
  14. Walgreens (WAG): 3.6% of portfolio
  15. Qualcomm (QCOM) Calls: 3.5% of portfolio

The biggest story here is Shumway's massive additions to its Teva Pharma (TEVA) and Cisco Systems (CSCO) positions. It increased its TEVA stake by over 600% and brought it up to its largest holding. its CSCO stake is now its 3rd largest after boosting the position by almost 16,000%. Like Maverick Capital which 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 it brought it up to its top holding, while Shumway holds it at its #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 Shumway 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, the fund 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 it put a substantial amount of capital to work on the long side of its portfolio, tripling its exposure. As you can tell from the 'increased positions category, Shumway was definitely out adding across the board to portfolio names it already owned. And, it started brand new large positions in Wyeth (WYE) and Microsoft (MSFT) as well.

Its purchases will have proved to be very timely as the market has rallied substantially. It will be interesting to see if/when Shumway decides 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.