We track quarterly 13F filings from hundreds of hedge funds, including billionaire and Tiger Cub Stephen Mandel’s Lone Pine Capital. There are multiple ways for investors to use the information in 13Fs. For one, we have found that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year (and think that more strategies are possible as well). We can also compare an individual fund’s most recent filing to the previous one in order to identify new picks in its portfolio over the course of that quarter. Read on for our thoughts on five of Lone Pine’s largest new holdings for the first quarter of 2013 and review Mandel’s previous filings.
The fund bought 4.9 million shares of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) between January and March after not having owned any shares of the $28 billion market cap pharmaceutical company at the beginning of the year. Valeant’s stock price is up over 90% in the last year, and while this has slightly outpaced the business’s growth revenue was up 25% last quarter compared to the first quarter of 2012. Viking Global, managed by fellow Tiger Cub and billionaire Andreas Halvorsen, increased its stake in Valeant by 28% to a total of nearly 5 million shares (see Halvorsen’s stock picks).
Mandel and his team initiated a position of 5.7 million shares in Virgin Media Inc. (NASDAQ:VMED); the company is currently in the process of being acquired by Liberty Global Inc. (NASDAQ:LBTYA). Merger arbitrage is a common hedge fund strategy, as the returns depend on whether or not the deal closes rather than on market conditions (as such, returns tend to be uncorrelated with market indices). Read more about investing in merger arbitrage plays. Returns on buying acquisition targets do tend to be low in absolute terms, but often look better when annualized and hedge funds can generally use high leverage as well.