Hedge Fund Maverick Capital Has Its Highest Tech Exposure Ever

by: Market Folly

Lee Ainslie's hedge fund Maverick Capital is out with the hedge fund's third quarter investor letter. Year-to-date for 2010 the fund is up 8.2% and has now seen 14.1% annualized returns since inception in 1995. Its Levered fund is doing even better this year, up 17.3% and has seen 22.3% annualized since inception. In total, the firm now manages over $12 billion across its various investment vehicles.

These returns are pretty solid but Q4 might be off to a bumpier start considering that one of Maverick's larger holdings has been Apollo Group (NASDAQ:APOL), the for-profit education play that's down over 23% in the past month. But on the converse side of things, the hedge fund's stake in Commscope (CTV) is up almost 40% over the past month on news of potential buyout talks. At the recent Value Investing Congress, Ainslie said he believed that technology stocks are cheap. The cheapest, he argues, than they've been in 20 years.

Maverick's Exposure Levels

Given this stance, it should come as no surprise that Maverick has a large allocation of capital to technology stocks. At the end of September, Maverick was 11.7% net long technology. And at the Value Investing Congress, he revealed that Maverick has its highest technology exposure ever.

At the end of September, other notable net long exposure include financials at 13% and the consumer sector at 12.6%. In terms of notable net short positions by geography, they are net short emerging market technology, European technology, emerging market industrials, and Japanese media & telecom. Maverick seems to be betting on U.S. companies and hedging those holdings via shorts in foreign companies to some extent.

Maverick's Portfolio

Regarding portfolio construction, Ainslie's firm currently has 67 longs and 80 shorts. Its largest long represents a 4.7% position whereas its largest short is 2.9%. Overall, Maverick's average position size is 2.1%. As we've detailed in our profile of Maverick Capital, Lee Ainslie implements strict position sizing rules and has a solid focus on risk management. The hedge fund's top 10 investments currently represent 29% of the portfolio.

We detailed Maverick's second quarter positions in our newsletter, Hedge Fund Wisdom. The next issue (released in a few weeks) will detail Ainslie's third quarter portfolio holdings. In the mean time, we know Maverick has been long Commscope (CTV), Marvell Technology (NASDAQ:MRVL), and Adobe (NASDAQ:ADBE). Dell (NASDAQ:DELL), Intel (NASDAQ:INTC), and Microsoft (NASDAQ:MSFT) were others he recently talked about.

Bond Market Inflows/Equity Market Outflows

Embedded below is Lee Ainslie and Maverick Capital's third quarter 2010 letter to investors. In it, Maverick's Steve Galbraith talks about the potential bond bubble where he argues that government bonds are essentially trading at a P/E equivalent to 40x. He also addresses a noticeable change in investor sentiment as they prefer bonds to stocks in a knee-jerk reactionary maneuver:

Since 2007 over seven hundred billion dollars has flowed into fixed income funds while nearly two hundred billion dollars has left equity funds. These flows are staggering; they suggest the (potentially lethal) combination of driving 100 miles per hour while looking through the rear view mirror because the scenery just past looks so good (bonds outperformed stocks by record levels in part of this period), but also being too afraid to look forward in fear that, well, there is no there there.

Here's the letter:

You can download a .pdf copy here.

Be sure to also check out Lee Ainslie's presentation from the Value Investing Congress just a few weeks ago for some more of his recent thoughts.

Original article