Horseman Capital Management Emerging as One of the Best Performing Funds; Here Are Its Notable Q4 Moves

While many hedge funds generated negative returns for their investors in 2015 and are off to a similar start in 2016, London-based Horseman Capital Management has emerged as an outlier. Founded in 2001 by John Horseman, the fund boasts an excellent track record of only two down years (in 2009 and 2011) in the last 15 years of its existence. In 2015, when hedge funds lost an average of 3.49%, Horseman Capital Management’s flagship fund, Horseman Global, gained 20.42%. As of January 13, Horseman Global was again up, by 10.49% for 2016 and outperforming its peers by a wide margin. Horseman Capital Management recently submitted its 13F filing with the SEC for the reporting period of December 31. According to the filing, the fund’s U.S equity portfolio was worth $370 million at the end of December and consisted of long positions in 24 stocks. Since Horseman Capital Management emerged as one the best performing funds in 2015 and is doing exceedingly well in 2016, in this article we are going to focus on the five most notable moves that the fund made in U.S equities during the fourth quarter.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about 6 basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas (see the details here).

Let’s start with Weight Watchers International, Inc. (NYSE:WTW), which was a new addition to Horseman Capital Management’s portfolio. The fund purchased 210,300 shares of the company during the fourth quarter, valued at $4.8 million as of December 31. Shares of Weight Watchers International, Inc. (NYSE:WTW) saw a meteoric rise during the fourth quarter after it was revealed that media mogul Oprah Winfrey had purchased a 10% stake in the company for $43.2 million. However, they have given up most of those gains this year and are trading down by over 50% year-to-date. On February 9, analysts at ITG Investment Research released a note in which they described how Ms. Winfrey’s association with the company has helped it to gain more subscribers. They feel this subscriber growth will help Weight Watchers International, Inc. (NYSE:WTW) to report revenue of $260 million for the fourth quarter, $3 million above the consensus estimate. Steve Cohen‘s family office Point72 Asset Management appears to have timed its entry into the stock very well, having initiated a stake in Weight Watchers International, Inc. during the third quarter, purchasing 814,700 shares of the company.

Horseman Capital Management reduced its stake in Chinese online discount retailer Vipshop Holdings Ltd – ADR (NYSE:VIPS) by 73% to 410,000 shares during the fourth quarter, relegating the company to 13th-position in its equity portfolio at the end of December. As of December 31, this stake was worth $6.26 million. Shares of Vipshop Holdings Ltd – ADR (NYSE:VIPS) fell heavily on November 13, losing 26.8%, after the company reported preliminary third quarter results. However, they managed to recover quickly afterwards and ended the fourth quarter down by only 9.10% for the period. This year the stock has lost some 30% however, and with an RSI reading of 31 is currently hovering around oversold territory. The company is scheduled to report its financial results for the fourth quarter next week and analysts expect it to report EPS of  $1.06 on revenue of $12.33 billion. For the same quarter of last year Vipshop Holdings Ltd – ADR (NYSE:VIPS) reported EPS of $0.12 on revenue of $1.36 billion.

Three of Horseman Capital’s biggest moves are detailed on page two.

Moving on, Apple Inc. (NASDAQ:AAPL) was the largest new purchase of Horseman Capital Management during the fourth quarter. The fund purchased 120,000 shares of the tech giant during that period, worth $12.63 million as of December 31. Shares of the company have fallen by over 30% since July of last year due to a number of factors, including a downturn in the economy of its second-biggest market, China. Despite reporting record first quarter numbers for fiscal year 2016 on January 26, Apple Inc. (NASDAQ:AAPL)’s stock fell significantly due to its guidance of a 9.14% year-over-year decline in fiscal second quarter revenue. While it is clear that the company’s hardware sales are in a phase of decline at the moment, several analysts continue to be bullish on the company, citing its ability to innovate and launch new products. On February 9, analysts at Piper Jaffray reiterated their ‘Overweight’ rating and $172 price target on Apple’s stock. Billionaire Ken Fisher‘s Fisher Asset Management increased its holding in Apple Inc. (NASDAQ:AAPL) by 1% to 11.28 million shares during the fourth quarter.

Banking has long been one of the favorite sectors of Horseman Capital Management, hence it’s not a surprise that the fund increased its stake in Bank of America Corp (NYSE:BAC) by 147% to over 1.67 million shares during the fourth quarter. However, this bet doesn’t seem to be panning out well for the fund at the present juncture, given that Bank of America Corp (NYSE:BAC) has lost 34% of its market cap this year. Though there are a number of reasons for this fall, the most notable among them is the flattening of the yield curve for government bonds after the recent rate hike, while looming fears of a recession in the U.S are also prominent. Bank of America Corp (NYSE:BAC) is currently trading at a forward price-to-earnings multiple of 6.64 and price-to-book multiple of only 0.53, which makes it significantly cheaper than its peers and several analysts believe it is a great value buy at these prices. Richard S. Pzena’s Pzena Investment Management reduced its stake in the company by 4% to 28.66 million shares during the fourth quarter.

Finally, the 11.7% rise in its stock price coupled with Horseman Capital Management increasing its stake in the company by 32% during the fourth quarter, helped push Costco Wholesale Corporation (NASDAQ:COST) up three spots quarter-over-quarter to become the fund’s fifth-largest holding at the end of December. Horseman Capital Management now owns 208,800 shares of the company, worth $33.72 million as of the end of December. Due to the slump in the broader market, shares of Costco Wholesale Corporation (NASDAQ:COST) have fallen by 9.2% this year. On February 3, the company reported that its net sales grew by 2% year-over-year in January, to $8.32 billion and excluding currency volatility and the effect of gasoline prices, its comparable store sales increased by 4%. David Harding‘s Winton Capital Management was one of the hedge funds that reduced its stake in Costco Wholesale Corporation (NASDAQ:COST) substantially during the fourth quarter, by 87%.

Disclosure: None