We are 3 weeks away from the 13F filing deadline but it seems like hedge funds are exiting their bets in favor of other mega-cap tech companies. On Monday we reported that Patrik Brummer’s Swedish hedge fund sold his Apple Inc. (NASDAQ:AAPL) stake and made Alibaba (BABA) and Google (GOOGL) its top two picks. Today we have seen a copy of Lone Pine Capital’s Q2 investor letter. Lone Pine Capital’s various funds returned around 7-7.5% during the first half of this year vs. 1.2% gain for the S&P 500 Index. Billionaire Stephen Mandel is one of the most successful Tiger cubs and he has been betting on Apple since the fourth quarter of 2014. At the end of March Lone Pine owned more than 6.8 million shares of Apple. According to Lone Pine’s investor letter the fund exited “long-standing positions in Apple, Baidu (BIDU), Global Logistic Properties and Michael Kors – in favor of increasing several existing positions (Charter Communications, Facebook, Illumina, Microsoft, Williams Companies)”. The letter which is signed by Steve Mandel, Mala Gaonkar, Dave Craver, and Marco Tablada does not specifically explain why the fund currently prefers Facebook Inc (NASDAQ:FB) and Microsoft Corp (NASDAQ:MSFT) over Apple. However, it gave the following blanket explanation:
“…value is being created in today’s equity markets, principally in two ways: through innovation and through the deployment of capital, using low interest rate debt to fund capital investment, share repurchase and acquisitions. Our portfolio largely reflects these two valuecreation methods, with the vast majority of our capital in these two broad areas. We remain committed to internet-enabled and enabling businesses globally, companies that are reshaping advertising, entertainment, networking, retailing and travel, among other industries. We are also invested behind innovation in energy, enterprise software and networks, genomics, manufacturing and pharmaceuticals. ”
Actually Mala Gaonkar laid out Lone Pine’s investment thesis at this year’s Sohn Conference in May. She said “legacy tech remains misunderstood”. Microsoft benefited from activist ValueAct Capital’s involvement. She likened Microsoft to a super tanker that is slowly turning itself around. Microsoft, which is one of the biggest software companies in the World, and other legacy tech companies control 85% of the cloud software market and this is a high growth market with 20% annual growth rates. She predicted $106 billion in revenue and almost $4 EPS for 2016. She estimated Microsoft’s top line growth rate at 9%.