Seeking Alpha
Research analyst, growth at reasonable price, newsletter provider, Top 300 fund picks
Profile| Send Message|
( followers)  

What do the top hedge fund gurus like in the China sector? This article, the third in a series, identifies through a meticulous research of the latest available institutional 13-F filings, the gurus that are most invested in North American exchange traded Chinese equities, and the Chinese companies which they prefer to hold in their hedge fund portfolios. The first two articles in the series identified gurus that are overweight in the solar and utilities sectors, and the stocks within those sectors that they hold in their portfolios (For those familiar with the series, skip over to the fifth paragraph).

A guru is defined as someone who is regarded as having great knowledge, wisdom, and authority in a certain area. When it comes to hedge funds, there are a number of ways to anoint leading managers as gurus including long-term performance, low portfolio volatility and an elite reputation in the investment community.

Many of us are familiar with leading investors and hedge fund managers such as Warren Buffet, George Soros, Carl Icahn and Julian Robertson, but the hedge fund community alone includes over 9,000 funds; add in mutual funds, ETFs, and other investment entities, and the number is likely to be at least two to three times that number. While there is no official list of gurus, less than one percent or between 100 to 200 fund managers are commonly believed by the larger investment community to have earned the distinction of being called gurus.

The study of the investing habits of gurus can be informative as these are very savvy, well-respected investors with high personal net worth deploying large sums of capital from their funds on a regular basis. They have a long-term track record of success, and while one can easily just ride their coattails, the savvy investor may want to use these lists as a starting point to conduct their own due diligence.

The total capitalization of the U.S. equity markets is somewhere in the $15 trillion range, and the total market capitalization of leading Chinese stocks traded in the North American markets is approximately $750 billion or 5% of the overall market. Given the volatility and recent allegations of fraud among many Chinese equities, particularly in the smaller capitalization section of the market, it is not surprising that only two gurus were over-concentrated (i.e., invested more than the average of 5%) in the Chinese markets, namely Joho Capital LLC and Oaktree Capital Management LP.

The criteria were then relaxed to include funds that have at least 2.5% (or half of the average of 5%) of their portfolio invested in Chinese equities. This widened the field to five funds, which are listed in the table. More importantly, perhaps, the Chinese companies these gurus are invested in, which can be considered a vote of confidence in this volatile sector, include the following:

  • Chinese Internet search engine leader Baidu Inc. ADS (NASDAQ:BIDU).
  • Leading Chinese Internet Portal Company Sina Corporation (NASDAQ:SINA).
  • Hong Kong-based provider of digital wireless voice and data services, China Mobile Ltd ADR (NYSE:CHL).
  • Leading Chinese digital media company Focus Media Holding Limited (NASDAQ:FMCN) that operates an out-of-home advertising network.
  • Leading Chinese solar companies LDK Solar Co. Ltd. (NYSE:LDK), JA Sola Holdings ADS (NASDAQ:JASO), and Suntech Power Holdings ADS (NYSE:STP).

Table

Fund and Guru

Type of Fund and Strategy

Assets Under Management

Percent Portfolio in Chinese Stocks

Major Chinese company positions in Portfolio

Joho Capital LLC (Robert Karr)

Hedge Fund – Long/Short

$ 600 million

41.5%

EDU, MR, HMIN, SVN, RDA, KH, BIDU

Oaktree Capital Management LP (Howard Marks)

Hedge Fund – Deep Value

$ 60 billion

7.7%

STP, CMED, LDK, CSUN, SNDA, CHL, HMIN, JASO, EDU

Tremblant Capital Group (Brett Barakett)

Hedge Fund - Long/Short

$ 1.9 billion

4.8%

CCIH, BIDU, BONA

Lone Pine Capital LLC (Steve Mandel)

Hedge Fund – Long/Short

$ 10.3 billion

3.8%

EDU, VIT, HTHT, HMIN, SVN

D.E. Shaw & Co., Inc. (David E. Shaw)

Hedge Fund – Long/Short

$ 40 billion

2.6%

Holding 74 Chinese companies with largest holdings in BIDU, EDU, TSL, LDK, SINA, PTR, FMCN, OTCPK:CCME

Joho Capital, with $600 million in assets under management (AUM), was founded by Robert Karr in 1996. Mr. Karr is one of the Tiger Cubs, so called because they learned to pick stocks at Julian Robertson’s legendary hedge fund Tiger Management LLC. The fund is generally concentrated in new technologies, with over 40% of the current allocation in Chinese equities.

With total assets under management of over $60 billion, including $2.7 billion in equities, hedge fund Oaktree Capital Management (headed by Howard Marks) was founded in 1995 and offers strategies in high-yield debt, convertibles, distressed debt, private equity and real estate.

Tremblant Capital Group, a hedge fund formed in 2001 by Brett Barakett, invests in long/short strategies.

Steve Mandel, who started Lone Pine Capital in 1997, is also a former Tiger Cub. He was a senior managing director and consumer analyst at Julian Robertson’s Tiger Management Corporation from 1990-97 prior to starting Lone Pine Capital.

D.E. Shaw is a global investment and technology development hedge fund based in New York, whose activities center on many aspects of the intersection between technology and finance. They apply both quantitative and qualitative trading strategies to hedge fund management. Although since 2001, Mr. Shaw has returned to full-time scientific research in computational biochemistry, his firm D.E. Shaw is considered as a giant in the industry and Fortune Magazine has previously referred to him as “King Quant” due to his firm’s expertise in quantitative trading.

Credit: Historical fundamentals including operating metrics and stock ownership information were derived using I-Metrix by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are my opinions and I may be wrong. I may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to my thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

Source: Top China Picks of Hedge Fund Gurus Invested in China Stocks