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Hedge fund Joho Capital, with $580 million in assets under management and headed by investor Robert Karr, has returned market-beating 20% plus compounded returns since fund inception in 1996. Three attractive buys from his portfolio include Chinese hoteliers Seven Days Group Holdings (SVN) and Home Inns & Hotels Management (HMIN), and Chinese education services provider New Oriental Education & Technology (EDU). Furthermore, Chinese medical products provider China Kanghui Holdings (KH) is a top sell by Joho Capital.
The fund maintains more than two-thirds of its positions in China-based companies traded on the U.S. exchanges. Karr, like Stephen Mandel at Lone Pine Capital LLC, John Griffin at Blue Ridge Capital Holdings LLC and Lee Ainslie at Maverick Capital, is a "tiger cub," meaning that he honed his investment skills while working for legendary hedge fund manager Julian Robertson at Tiger Management LLC. The fund is a long/short equity fund, and it has returned over 20% compounded annual returns since inception in 1996, with the last three-year returns being 19%, 20% and 18% for 2008, 2009 and 2010, respectively.
The fund holds a concentrated portfolio of 13 positions, with two-thirds of its holdings in large-caps and the remaining one-third equally distributed between mid-cap and small-cap equities. Its portfolio turnover is very low with no new or closed positions in the March 2011 quarter. Based on the most recent SEC 13-F filing for the March 2011 quarter, we determined that eight of its 13 positions are in equities of China-based companies traded on U.S. stock exchanges, one is a Korean company, and the other four are U.S. companies with significant exposure to the Chinese and Asian markets.
The following summarizes its largest new buys and sells in the latest reported 13-F filing for the March 2011 quarter, and updated based on any 13-G filings since the end of the quarter. As you will see, three of Joho’s holdings are attractive buys, and one is a conviction sell:
  • Seven Days Group Holdings ADR is a Chinese hotel manager operating 337 hotels with over 32,000 total rooms, and 64 hotels with over 6,000 total rooms under conversion. Joho opened this position at the end of 2009 when the stock was trading in the low-teens, and it did not take any profit in the stock last quarter as the stock doubled in price and traded in the mid-$20s. The stock has since retreated into the mid-teens as fundamentals continue to be favorable and analyst price targets for the stock are in the mid to high-$20s. This is a conviction hold for Joho and the recent price correction makes this an attractive buy.
  • Home Inns & Hotels Management ADS is a Chinese hotel manager operating over 616 hotels with over 70,000 rooms, and 69 hotels under development. Joho opened this position in mid-2009 in the high-teens, and bought more last quarter as the stock traded in the mid-$40s, indicative of Joho’s bullish on this position. The stock has recently retreated back in the mid-$30s as the outlook continues to be favorable and analyst targets remain high in the $50-55 range.
  • New Oriental Education & Technology ADS is a Chinese provider of language training and test preparation courses to 1.8 million students via 367 schools and centers. Joho opened this position at the end of 2006 in the $30 range, and cut a minor portion of it as the stock traded in the $120s last quarter. This is a long-term conviction hold for Joho, and the stock has retreated 25% from its $131 high six weeks ago, making it an attractive buy as the fundamentals continue to improve and the company continues to beat analyst revenue and earnings estimates.
  • China Kanghui Holdings ADS is a Chinese developer of proprietary orthopedic implants and associated instruments for domestic and emerging markets. Joho opened this position in the mid-teens in the summer of 2010, and it sold most of it as the stock traded in the $20 range last quarter, indicative of Joho’s bearishness on the position. The stock has gone up from the low-teens last summer to trading in the $25 range as fundamentals have only marginally improved; it trades at a very high 30+ PE and the single analyst target on the stock is $18.
  • Nvidia Corp. (NVDA) is a designer of graphic processing units used in personal computers, workstations, game consoles, and mobile devices. Joho opened this position in the mid-teens at the end of 2010
  • Yahoo Inc. (YHOO) is a premier digital media company that delivers personalized digital content and experiences, across devices and around the globe, to vast audiences. It provides Internet search, shopping services and advertising through its website, yahoo.com. Joho opened this position in the high-teens in early 2010, and the stock has been weak since, so Joho’s conviction in holding this position does not carry much informative value.
  • Baidu Inc. ADS (BIDU) is a leading Chinese provider of Internet search, targeted online advertising and other Internet content services. Joho maintains a minor $3 million position in BIDU that it opened in the mid-teens at the end of 2006. The stock traded above $150 last quarter.
  • Google Inc. (GOOG) is the leading online search engine and provider of Internet content services and web-based and desktop software applications. Joho opened this position in the $500 range at the end of 2006, and continues to hold a minor $34 million position in the stock as it traded near break-even for Joho in the prior quarter.
  • Mindray Medical International ADS (MR) is a Chinese developer of patient monitoring, life support and in-vitro diagnostic products and medical imaging systems. Joho opened this position at the end of 2006 when the stock was trading in the mid-$20s. The stock has been volatile since, trading recently back in the mid-$20s with a trading range of between $13 and $45 in the last three years. Revenue and earnings growth have slowed down and analyst targets for the stock are in the $30 range. Joho sold half of its position from the prior quarter at a break-even almost five years later.
  • Estee Lauder Cos (EL) manufactures makeup, fragrance and skin/hair care products in over 150 countries. Joho opened this position in mid-2010 in the $60 range. The stock traded in the $100 range last quarter and Joho cut only a fraction of its position in the stock, indicative of its conviction in holding this position. The stock trades at a very high premium forward PE of over 25 but continues to beat quarterly revenue and earnings estimate and raise guidance. Analyst targets are currently in the $85-110 range, indicating that while there may be additional upside; perhaps the low-risk entry point is long gone.
  • TAL Education Group ADS (XRS) is a Chinese provider of K-12 after-school tutoring services to 382,505 students via 109 learning and 87 service centers. Joho opened this position in the mid-teens at the end of 2010, so it's adding another $11 million to the prior quarter's $9 million position -- indicative of its bullishness on the position.
  • RDA Microelectronics ADS (RDA) is a Chinese designer of RF and mixed-signal semiconductors for cellular, broadcast and connectivity applications. Joho opened this position in the mid-teens at the end of 2010, and added to this position as it continued to trade in the mid-teens last quarter.
  • KT Corp. ADR (KT) is a Korean provider of local exchange, long-distance, wireless, broadband, IP-TV, video multimedia and leased line services. Joho opened this position in the mid-teens in mid-2010. This is one of Joho’s biggest positions, and the stock continues to trade in the mid-to-high teens.
Table
Company
Ticker
Action
Market Value at end of March 2011 Quarter
Change in Value from Prior Quarter
Percent of Portfolio
Percent Shares Owned
Top Buys and Sells
Mindray Medical Intl Ltd.
MR
Cut
$ 20 million
($19) million
3.52%
0.95%
Lauder Estee Co.
EL
Cut
$ 112 million
($17) million
19.35%
0.97%
New Oriental Education & Technology Group Inc.
EDU
Cut
$ 143 million
($17) million
24.68%
0.93%
Home Inns & Hotels Management Inc.
HMIN
Add
$ 40 million
$16 million
6.91%
1.28%
Tal Ed Group.
XRS
Add
$ 20 million
$11 million
3.43%
2.39%
Top Holdings
Yahoo Inc.
YHOO
Cut
$ 100 million
($6) million
17.31%
0.46%
KT Corp.
KT
Same
$ 66 million
$0 million
11.42%
0.65%
Google Inc.
GOOG
Cut
$ 34 million
($0) million
5.95%
0.02%
7 Days Group Holdings Ltd.
SVN
Same
$ 19 million
$0 million
3.27%
0.62%
RDA Microelectronics Inc.
RDA
Add
$ 15 million
$1 million
2.67%
0.41%
Other Holdings
Nvidia Corp.
NVDA
Cut
$ 4 million
($1) million
0.66%
0.04%
Baidu Inc.
BIDU
Same
$ 3 million
$0 million
0.59%
0.09%
China Kanghui Holdings
KH
Cut
$ 1 million
($7) million
0.24%
0.06%
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, 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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Source: 13 Holdings of Robert Karr's Joho Capital