Duquesne Capital Looking For Winner In This IPO After Stock Picks Suffer In Third Quarter

According to a recent 13G form filed with the SEC, Stanley Druckenmiller‘s Duquesne Capital has revealed a stake of 1.6 million shares in the Pure Storage Inc (NYSE:PSTG), which provides flash chip-based storage products and which recently launched its IPO. The holding amasses about 6.4% of the company’s outstanding shares. Duquesne Capital might see the stock price of its equity pick rise considerably going forward, as Pure Storage’s main competitor EMC Corporation (NYSE:EMC) is distracted, owing to its recent merger deal with Dell Inc. (NASDAQ:DELL), a $67 billion cash-and-stock transaction which is also the largest ever in the technology space.

Druckenmiller is best known in investment circles for his short position on the British pound along with George Soros in 1992, which resulted in a $1 billion gain. Duquesne Capital, which is now a family office, has a public equity portfolio worth $1.48 billion as of June 30. During the third quarter, 28 of the firm’s 29 equity positions were in companies with a market cap greater than $1 billion, and these stock picks had a weighted average returns loss of 11.68% during the third quarter. Based on the same metric the family office’s losses so far this year amount to 3.3%. Almost 41% of its portfolio belongs to the materials sector, while another 23% is tied up in finance. Let’s take a look at some of the top picks of this family office and their returns in the third quarter.

At the end of June, Duquesne held some 1.87 million shares of Facebook Inc (NASDAQ:FB) valued at $160.61 million and constituting more than 10% of its portfolio. The stock price of the $275.70 billion social media company rose by about 4.7% during the third trimester. The company garners strong support from the hedge funds that we track, as a total of 133 among them had an aggregate investment worth $8.86 billion in the stock at the end of June, compared to 129 funds with $7.09 billion worth of shares at the end of March. Stephen Mandel‘s Lone Pine Capital tops this list, as it held some 9.76 million shares of Facebook Inc (NASDAQ:FB) at the end of June.

Why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 37 month period beginning from September 2012, returning 102% (read the details here).

Duquesne’s second-largest equity pick, Wells Fargo & Co (NYSE:WFC), in which it held almost 1.68 million shares, posted a performance in stark contrast to Facebook Inc (NASDAQ:FB)’s, as it slid by nearly 10% during the September quarter. The bank has been finding it difficult to expand its loan book and thus increase its net interest margin. The recent acquisition of assets from GE has helped to push the needle in the right direction, but it remains to be seen how sustainable these results are. Legendary investor Warren Buffett‘s Berkshire Hathaway is the largest stockholder of Wells Fargo & Co (NYSE:WFC), holding about 470.30 million shares of the bank holding company at the end of June.

Another tech company that Duquesne held a significant stake in was Microsoft Corporation (NASDAQ:MSFT), with some 1.40 million shares representing 4.16% of its portfolio. The stock traded nearly sideways during the September trimester. ValueAct Capital, which is led by Jeffrey Ubben is another strong believer in the Microsoft Corporation (NASDAQ:MSFT) turnaround story under Satya Nadella, as it held about 75.27 million shares of the tech giant at the end of June.

eBay Inc (NASDAQ:EBAY) represented 1.33% of Duquesne’s portfolio, as the family office held about 777,000 shares at the end of June. Shares of the e-commerce company fell by almost 60% during the September quarter due to the Paypal Holdings Inc (NASDAQ:PYPL) spinoff in July. JP Morgan recently reiterated its ‘Neutral’ rating for eBay, but lowered its price target on the stock to $32 from $33. Famous activist investor Carl Icahn’s Icahn Capital LP tops our list of eBay Inc (NASDAQ:EBAY) shareholders, as it held over 46.27 million shares of the company valued at $2.79 billion at the end of June.

Disclosure: None