Conatus Bets on Tech and Homebuilders

by: Market Folly

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 David Stemerman's hedge fund Conatus Capital. This is only the fourth time we've covered Conatus' portfolio because this is literally only its fourth 13F filing. It's a newer fund, but its manager definitely has experience. Conatus raised $2.3 billion and began trading last year after David Stemerman left Stephen Mandel's Lone Pine Capital to start his own hedge fund.

Conatus is an interesting story to follow because Stemerman's old employer is a prominent 'Tiger Cub' hedge fund. Stephen Mandel was part of the group of Tiger Cubs that left Julian Robertson's successful Tiger Management to start their own hedge funds. Now Mandel has taken on the role of mentor and is seeing former employees going on to start their own funds. Things have come full circle and we're starting to see Tiger GrandCubs. In addition to David Stemerman, Matt Iorio also left Lone Pine to start his own firm, White Elm Capital, who we will track for the first time tomorrow. We find it appropriate to track these two gentlemen because they are well-versed in the successful bottom-up 'Tiger' stockpicking and have contributed to Lone Pine's solid track record over the years. You can check out our previous Conatus portfolio update here. Let's now move onto Conatus' portfolio from the third quarter of 2009.

Keep in mind that the positions listed below were Conatus' 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
Conatus initiated last quarter:
Wells Fargo (NYSE:WFC)
Weatherford International (NYSE:WFT)
DR Horton (NYSE:DHI)
Toll Brothers (NYSE:TOL)
Monsanto (NYSE:MON)
Mindray Medical (NYSE:MR)
Bed Bath & Beyond (NASDAQ:BBBY)
Carnival (NYSE:CCL)
Freeport McMoran (NYSE:FCX)
BHP Billiton (NYSE:BHP)

Some Increased Positions
Positions Conatus already owned but added shares to:
Cisco Systems (NASDAQ:CSCO): Increased position by 150.5%
Google (NASDAQ:GOOG): Increased by 61.5%
Petrohawk (NYSE:HK): Increased by 48.4%
SBA Communications (NASDAQ:SBAC): Increased by 47.5%
Itau Unibanco (NYSE:ITUB): Increased by 32.2%
Crown Castle (NYSE:CCI): Increased by 30.6%
Apollo Group (NASDAQ:APOL): Increased by 28.9%
Express Scripts (NASDAQ:ESRX): Increased by 17%

Some Reduced Positions
Stakes Conatus sold shares in but still own:
Priceline (NASDAQ:PCLN): Reduced position by 42.8%
CTrip (NASDAQ:CTRP): Reduced by 37.1%
Teradata (NYSE:TDC): Reduced by 30.6%
Cognizant Tech (NASDAQ:CTSH): Reduced by 25.1%
CH Robinson (NASDAQ:CHRW): Reduced by 21.5%
Walter Energy (NYSE:WLT): Reduced by 20.1%
Amazon (NASDAQ:AMZN): Reduced by 14.2%

Removed Positions
Positions Conatus sold out of completely:
Mastercard (NYSE:MA)
Visa (NYSE:V)
American Tower (NYSE:AMT)
Discovery Communications (NASDAQ:DISCA)
Southwestern Energy (NYSE:SWN)

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

  1. Apple (NASDAQ:AAPL): 5.34%
  2. Apollo Group (APOL): 4.98%
  3. Range Resources (NYSE:RRC): 4.84%
  4. Medco Health (NYSE:MHS): 4.41%
  5. Cisco Systems (CSCO): 4.33%
  6. Express Scripts (ESRX): 4.32%
  7. Walter Energy (WLT): 3.7%
  8. Google (GOOG): 3.63%
  9. Wells Fargo (WFC): 3.63%
  10. Weatherford International (WFT): 3.53%
  11. JPMorgan Chase (NYSE:JPM): 3.53%
  12. Itau Unibanco (ITUB): 3.27%
  13. Cognizant Tech (CTSH): 3.08%
  14. DR Horton (DHI): 3.05%
  15. Toll Brothers (TOL): 3.04%

Overall, Conatus increased its holdings in basic materials and decreased its stakes in services. It was very intriguing to see it sell completely out of the payment processing duo of Mastercard and Visa. It is notable because almost almost all of the other Tiger Cub hedge funds own one or both of these stocks and Conatus' sale means Conatus has taken a different path.

In terms of positions it added to, Conatus was fond of technology as it added heavily to its positions in Google and Cisco Systems. Stemerman's hedge fund also started brand new stakes in the homebuilders (Toll Brothers & DR Horton) which was worth noting given the tough times these companies have faced with the economy.

Much like fellow hedge fund John Griffin's Blue Ridge Capital, Conatus also had Apple (AAPL) as its top long U.S. equity holding. Coming in at their #2 holding was their stake in Apollo Group (APOL), another favorite amongst Tiger Cub hedge funds. Conatus' portfolio overall includes three stocks found on the list of most popular stocks amongst hedge funds.

Assets from the collective holdings reported to the SEC via 13F filing were $1.9 billion this quarter compared to $1.2 billion last quarter. So, like many other hedge funds, Conatus' long exposure to U.S. equities increased substantially. 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 Conatus has undoubtedly shifted around its 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, John Griffin's Blue Ridge Capital, Shumway Capital Partners (Chris Shumway) and Thomas Steyer's Farallon Capital. Check back daily as we'll be covering new hedge fund portfolios.

Original article