Joho Capital, founded by Robert Karr in 1996, is a hedge fund that has generated returns of around 20% per year since its inception. In 2013, the fund reported returns of around 30%, following which it returned money to outside investors, turning into a family office. The fund’s equity portfolio value declined by 12% during the fourth quarter to $521 million at the end of 2014. At the same time, the number of positions declined to 11 from 13 as the fund closed its stakes in 58.com Inc (ADR) (NYSE:WUBA) and Vipshop Holdings Ltd – ADR (NYSE:VIPS). Overall, the ten long positions in Joho’s equity portfolio in companies with a market cap of over $1.0 billion had weighted average returns of 6% during the first quarter of 2015, significantly beating the S&P 500 ETF (SPY) by some 5.0 percentage points.
As a part of our small-cap strategy, we analyze the equity portfolios of over 700 hedge funds and identify the most popular companies among them with market capitalizations of between $1.0 and $5.0 billion. The strategy is supported by strong backtest results, which showed that a portfolio of the 15 most popular small-cap picks among hedge funds managed to outperform the market by 1.0 percentage point per month, while the most popular large-cap picks underperformed the market by around 7.0 basis points. Another point that supports the successful outcome of our strategy is the 132% returns in the last 2.5 years, which beat the S&P 500 ETF (SPY)’s returns by around 80 percentage points (read more details here).
With this in mind, let’s take a closer look at some of the positions in Joho’s equity portfolio which had a significant contribution to its quarterly returns. According to its latest 13F, Baidu Inc (ADR) (NASDAQ:BIDU), Google Inc. (NASDAQ:GOOG), and TAL Education Group (ADR) (NYSE:XRS) remained the top three positions of the fund.
Joho Capital’s largest stake is represented by Baidu Inc (ADR) (NASDAQ:BIDU), a Chinese-language Internet search engine provider, in which the investor holds a stake equal to 23.90% of its equity portfolio. The position contains nearly 546,600 shares, down by 20% on the quarter, valued at $124.60 million as of the end of 2014. Baidu Inc (ADR) (NASDAQ:BIDU)’s stock declined by 8.58% during the first three months of 2015, partly attributed to lower than expected revenues for the fourth quarter of 2014, and conservative first quarter 2015 revenue guidance. Other major investors in Baidu Inc (ADR) (NASDAQ:BIDU) are Stephen Mandel’s Lone Pine Capital owning 7.03 million shares valued at $1.6 billion and Philippe Laffont’s Coatue Management, which has 2.95 million shares valued at $672.69 million.
Next in line is Google Inc (NASDAQ:GOOG), in which Joho owns 150,700 class C shares with a value of $79.31 million, representing 15.21% of its equity portfolio. The stake was increased by 37,700 shares during the last three months of 2014. Additionally, the investor disclosed holding around 86,000 shares of Google’s class A stock. Both class A and class C stocks of Google Inc (NASDAQ:GOOG) posted solid returns of 4.53% and 4.10% during the first quarter. Google Inc (NASDAQ:GOOG) is one of the most popular stocks among the funds that we track, with large positions having been reported by Boykin Curry’s Eagle Capital Management, which owns 1.12 million class C shares, Ken Fisher’s Fisher Asset Management, and Andreas Halvorsen’s Viking Global.
TAL Education Group (ADR) (NYSE:XRS) is the fund’s third largest position, comprising 13.18% of its portfolio with 2.45 million shares valued at $68.74 million, as of the end of 2014. Joho’s investment in TAL Education Group (ADR) (NYSE:XRS) paid off well, as the stock appreciated by 18.26% during the first quarter. Christopher Lyle’s SCGE Management, Lei Zhang’s Hillhouse Capital Management and Jim Simons’ Renaissance Technologies are among the largest shareholders of TAL Education Group (ADR) (NYSE:XRS), holding multi-million dollar stakes as of the end of last year.