We have seen a copy of Viking Global’s third quarter investor letter. Andreas Halvorsen’s Viking Global is among the most successful long/short equity hedge funds (Stock Picks, Investor Letters). Its flagship hedge fund returned 4.1% during the third quarter, bringing its gains to 10.8% for the first 9 months of the year. Below you can read their discussion about three of their big position.
Viking Global had the biggest position in Alibaba Group Holding Ltd (NYSE:BABA) among the 700+ hedge funds we are tracking. Billionaires Dan Loeb (see his portfolio), George Soros, and Rob Citrone were also among the top 5 Alibaba Group Holding Ltd (NYSE:BABA) shareholders at the end of the third quarter. Here is what Halversen said about Alibaba in his investor letter:
“Our biggest winner for VGE was Alibaba, contributing 2.0%. When we made our initial investment in 2012, we were intrigued by the company’s dominant position in Chinese eCommerece because we believed that this rapidly expanding market would enjoy long-term secular growth. In addition, we were excited by the company’s advertising-based revenue model and the potential for further monetization and margin expansion. Although the stock price has appreciated materially since we acquired our original investment, we remain bullish on the prospects of Alibaba, which ranked as our sixth largest position on September 30.”
Obviously Viking Global is a very large fund with its hands in a lot of pies. Biotech stock Regeneron Pharmaceuticals Inc (NASDAQ:REGN) is one of them.
“VLF’s best-performing long was Regeneron Pharmaceuticals, a large-cap biotechnology company. It has one of the most innovative R&D organizations and richest clinical development pipelines in the sector. Its most important revenue driver is Eylea, a treatment for retinal disorders such as wet age-related macular degeneration (a leading cause of severe vision loss in people over the age of 60). In June, Regeneron’s share price underperformed due to concerns that physicians were shifting prescriptions away from Eylea towards less costly alternatives. When our own due diligence, including extensive checks with retinal specialists, gave us confidence that such concerns were unfounded, we increased our stake in the company. The stock recovered sharply advancements in the company’s early-stage drug pipeline.”
The third stock that we will bring to your attention is another healthcare stock.
“Walgreens was our biggest loser this quarter, costing the funds 0.9%. As we outlined in our first quarter letter, when Walgreens was our biggest winner, the investment thesis hinges on the company’s increasing scale and opportunity for cost cutting. We are optimistic that it will extract operational efficiencies through its acquisition of Alliance Boots, the largest pharmacy chain and pharmaceutical distributor in Europe. The company’s stock sold off in the third quarter following a decision not to pursue a tax inversion as part of the acquisition. In addition, two senior executives announced their resignation and the company restated long-term goals following disclosure of flawed forecasting assumptions in its pharmacy contracts with health insurers and other payers. Walgreens has since filled these two positions with executives who we view positively and welcomed a well-known activist investor to its board. We view the majority of the financial setbacks as transitory. While base earnings are lower than when we originally underwrote the investment, we have maintained our position given our belief that the upside from economies of scale and cost cutting remain largely unchanged.”
Don’t feel bad for Halvorsen. Walgreens shares rebounded 25% since the end of September. Viking Global’s investors made more than $300 million if the fund hasn’t trimmed its stake.
