Whitney Tilson and Glenn Tongue's hedge fund T2 Partners has put out its annual letter. In this latest letter to investors, Tilson and Tongue address the macro environment, talk about how their portfolio fared and discuss their largest long and short positions.
Since hedge funds often do not reveal their short positions, we wanted to make special note of this glimpse we get into T2's short book. We had previously seen some of its shorts, but the list below is more expansive. Tilson and many other prominent hedge fund managers will be presenting investment ideas at the Value Investing Congress May 4th & 5th in Pasadena, and we highly recommend attending. We've secured a discount to the event for our readers, so make sure to use discount code P10MF5.
T2 Partners' 10 largest short positions heading into this year were (in alphabetical order):
3. Homebuilders (XHB): T2 Partners has been bearish on the housing market.
4. InterOil (IOC): Tilson has been bearish on this name for a while and argues that all their press releases (there's a lot of them) have artificially lifted the stock higher on no substantial news.
5. iShares Barclays 20+ Year Treasury Bond (TLT): We now see yet another hedge fund shorting long-term treasuries as a bet on rising interest rates, inflation, etc. This was one of Howard Marks' main recommendations in his recent plays for inflation. One of the original hedgies Michael Steinhardt himself has called Treasuries foolish. Legendary investor and ex-Quantum fund manager Jim Rogers shares this sentiment and dislikes Treasuries. Hedge fund legend Julian Robertson is betting on higher interest rates and is doing so via constant maturity swaps.
6. iShares Dow Jones Transportation Average (IYT): This appears to be another macro hedge.
7. Moody's (MCO): T2 Partners joins hedge fund colleague David Einhorn and Greenlight Capital, who are also short MCO. In Einhorn's recent investor letter, he mentioned how this short position has been causing pain, but he still feels Moody's faces headwinds.
8. Netflix (NFLX): Shares are up sharply on this name after they just reported earnings. This stock had been heavily shorted by hedge funds and looks to be causing everyone on the short side some pain.
9. Retail HOLDRs (RTH): This seems to be another macro hedge/short as T2 wagers against consumer spending, particularly discretionary spending. This gives it exposure to a basket of names.
10. Vistaprint (VPRT): This short position is intriguing because we've known many other hedge fund managers to be short. However, a few prominent hedgies also have long positions, so it's interesting to to note the difference in opinion. When we looked at the portfolio of Stephen Mandel's Lone Pine Capital, we noticed it had a large Vistaprint stake. Additionally, fellow hedgie Matt Iorio and his White Elm Capital had been long. We'll have to see which side of hedge fund land wins this battle.
We also got to see T2's 12 largest long positions as of Dec. 31, 2009. They are as follows:
1. General Growth Properties (GGWPQ): We recently covered Whitney Tilson's thoughts on General Growth Properties.
2. Berkshire Hathaway (BRK.B): Tilson was recently out talking about how he thinks Berkshire is undervalued and how it could be added to the S&P 500. His latter point just recently came to fruition, as BRK.B replaced Burlington Northern (BNI) in the index. This creates a ton of buyers, as index funds will need to buy $38 billion worth of BRK.B, around 23% of the total shares outstanding.
3. Iridium stock/warrants (IRDM): T2 notes that this company is growing very rapidly and has taken market share from competitors.
4. Microsoft (MSFT): T2 thinks this name is cheap, safe and rapidly growing.
5. American Express (AXP): While T2 has been trimming its long position as the stock has risen, the fund deems it currently at "reasonable valuation" and continues to hold.
6. Huntsman (HUN): T2 believes the company is now well poised to ride out the economic crisis after net debt declined by almost $3 billion with no more meaningful maturities until 2012.
7. Pfizer (PFE): We've started to see a lot of smart investors pile into this name. Fairholme Fund manager Bruce Berkowitz has a large Pfizer position. Also, we recently noted that Pfizer was the second most popular stock held by hedge funds. Berkowitz is certainly not alone in his fondness for this name. John Griffin's hedge fund, Blue Ridge Capital, listed Pfizer as its third-largest U.S. equity holding when we last checked.
8. dELiA*s (DLIA): T2 Partners likes this name because it has a low probability of permanent loss of capital and a good chance of making multiples on its money.
9. Sears Canada [TSE: SCC]: Tilson notes, "This stock trades at 4.2x trailing EV/EBITDA, around half the valuation of comparable retailers."
10. Yahoo! (YHOO): This definitely is a contrarian play in the tech space, as most of the hedge funds we follow are long Google (GOOG). T2 believes Yahoo's intrinsic value is nearly double its current price.
11. Fairfax Financial (OTCQB:FRFHF): T2 feels this is a "diverse collection of high-quality insurance businesses at a discount to intrinsic value."
12. Wendy's Arby's Group (WEN): T2 is confident that Nelson Peltz and his team can turn Wendy's around just as they did with Arby's.
So, there you have the long and short positions.