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Andreas Halvorsen and Viking Global’s New Stock Picks

Ole Andreas Halvorsen is one of the most successful Tiger cubs. Norwegian Halvorsen launched Viking Global at the end of 1999 with former Tiger employees David Ott and Brian Olson. Viking Global returned an astonishing 89% after fees in its first full year.Viking is a long/short global equity fund with a bottom-up stock picking approach. Andreas Halvorsen is very successful in picking winners and losers. Here is how Andreas Halvorsen explained their strengths in a recent investor letter:

We are stock pickers. We believe that our thoughtful analysis and disciplined valuation over time yield a diversified portfolio of longs and shorts whose stock price developments will deviate from each other and provide a profitable spread. Since inception, our average annual long-short spread has been 24%, although there is significant quarterly variability underlying this average ranging from a high of 24% to a low of -15%.

…We also confirmed our findings that the greatest alpha generation has been in our highest conviction ideas. As shown in the table below, of the 921 long and short investments we have made in VGE over the past five years that resulted in a profit or a loss exceeding ten basis points of performance on our total capital base, 59% were profitable. Of the 56 investments that resulted in a profit or a loss exceeding 100 basis points, 75% were profitable. Our top ten longs returned 28% per annum, outperforming the remaining longs in the portfolio by over 12 percentage points per annum on an unlevered basis. Over the same period, the MSCI World and S&P 500 indices returned 1.5% and 0.4%, respectively, per annum.

We conclude from these statistics that when we had strong conviction in an investment and scaled it, our success rate increased – in other words, our high conviction has been correlated with improved odds of being right. This is our profit engine. In addition to the historical data supporting this conclusion, the engagement of and collaboration among our senior portfolio managers – Tom Purcell, Dan Sundheim, Jim Parsons, and Dris Upitis – give me even greater confidence in our ability to identify compelling opportunities in the future. Collectively, these four, assisted by David Ott and me, assess the attractiveness of our best ideas across all portfolios. They are increasingly knowledgeable about opportunities in the incremental sectors they now cover. This is evident in the dialogue at our weekly portfolio meetings and in the many impromptu interactions throughout the week. I am very encouraged by this process and believe that it identifies which investments represent the most promising risk-adjusted return potential and highlights which positions require further investigation.

Andreas Halvorsen

Brian Olson left Viking in 2005 and David Ott stepped down in 2010. Between June 2005 (when Ott became the CIO of Viking) and March 2010, Viking Global returned 119% vs. 11% for the MSCI World Index. Viking Global charges 1.5% management fees and 20% incentive fees from investors. Last week Bloomberg reportedthat Dris Upitis resigned as Senior Manager. In the same article it is stated that Viking Global returned 13% during the last 10 years. Viking Global Equities lost 1.9% in 2008, gained 20% in 2009, and returned 3.8% in 2010.

During the last three months of 2010, Viking Global added $3.8 Billion in new stocks to the $12 Billion 13F portfolio. Here are the largest 25 new stocks Halvorsen added:

Company Ticker Return Value (Millions)
Yum! Brands, Inc YUM 2.0% 542
Blackrock Inc BLK 6.7% 319
Penn West Energy Trust PWE 12.0% 273
Google Inc. GOOG 5.1% 180
Akamai Technologies AKAM -11.9% 177
US Bancorp USB 1.8% 161
LyondellBasell Industries NV LYB 7.8% 158
McKesson Corp. MCK 11.9% 138
Apollo Group Inc. APOL 8.9% 134
H&R Block Inc HRB 11.3% 124
D.R. Horton DHI 5.2% 114
Beckman Coulter Inc. BEC 10.0% 105
Lincoln National Corporation LNC 14.4% 98
Procter & Gamble PG 1.4% 94
Hospira Inc HSP -2.6% 87
Marsh & Mclennan COS MMC 6.2% 85
Las Vegas Sands Corp LVS 2.8% 83
CapitalOne Financial COF 22.4% 73
Broadcom Corp – Cl A BRCM 0.2% 72
Perkinelmer Inc. PKI 5.0% 70
Talisman Energy Inc TLM 1.8% 70
Talecris Biotherapeutics Hldgs Corp TLCR 7.0% 67
Urban Outfitters Inc URBN 5.0% 66
Valspar Corp VAL 11.4% 66
Acme Packet Inc APKT 39.1% 54

These 25 new stocks returned 6% so far in 2011 vs. SPY’s 5.9%. Halvorsen followed fellow Tiger cub Stephen Mandel into Yum Brands with a $542 Million position.  Jonathan Auerbach and Lee Ainslie have investments in Google (GOOG), Dan Loeb’s Third Pointhas been invested in LyondellBasell, and Glenview’s Larry Robbinshas a large McKesson position. Lee Ainslie’s Maverick and Chase Coleman’s Tiger Global Management have long running Apollo Group (APOL) investments. Appaloosa’s David Tepperadded Broadcom Corp (BRCM) to his portfolio in the third quarter.

At the end of 2010, Andreas Halvorsen’s largest 25 positions had a total value of $8.7 Billion. Here is how they performed since then:

Company Ticker Return Value (Millions)
Invesco Limited IVZ 7.0% 856
Citigroup Inc C 3.2% 714
Time Warner Cable TWC 7.7% 608
Yum! Brands, Inc YUM 2.0% 542
The Sherwin-Williams Company SHW 2.5% 525
Estee Lauder Companies – Cl A EL 16.7% 510
Baidu Inc – Spon ADR BIDU 34.2% 454
Potash Corp of Saskatchewan POT 21.7% 444
American Tower Corp-CL A AMT 9.9% 397
EMC Corp. EMC 18.1% 337
Blackrock Inc BLK 6.7% 319 AMZN 5.1% 308
Goodrich Corporation GR 5.0% 302
Penn West Energy Trust PWE 12.0% 273
Valeant Pharmaceuticals Inte VRX 43.3% 261
PNC Bank Corp PNC 6.4% 244
Aon Corp AON 8.8% 234
Crown Castle Intl Corp CCI 4.9% 194
Devon Energy Corporation DVN 10.1% 190
Google Inc. GOOG 5.1% 180
Akamai Technologies AKAM -11.9% 177
Cigna Corp. CI 17.1% 163
US Bancorp USB 1.8% 161
LyondellBasell Industries NV LYB 7.8% 158
DaVita Inc. DVA 13.0% 158

It seems like Halvorsen had a better start in 2011 than in 2010. His largest 25 positions returned 10.3%, beating the SPY by 4.4 percentage points. His best performing positions are Valeant Pharmaceuticals, Baidu Inc (BIDU), Potash (POT), EMC Corp (EMC), and Cigna (CI). Valeant was recommended by HealthCor’s Joseph Healey at the Ira Sohn Conference.

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