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SRS Investment Management Follows Tiger Global’s Lead On Ehi Car Services Ltd (ADR) (EHIC)

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According to a recent filing with the SEC, Karthik Sarma‘s SRS Investment Management has hiked its stake in Ehi Car Services Ltd (ADR) (NYSE:EHIC) to about 8.33 million shares. The holding, which is valued at $108.37 million according to the current price of shares, represents about 15.3% of the company’s outstanding shares and includes 333,334 Class A shares held in the form of American Depository Shares (ADS).


Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 135% over the last 34 months and outperformed the S&P 500 Index by 80 percentage points (see the details here).

The New York-based hedge fund SRS Management was established by Sarma in 2007 after he worked as a senior investor at Tiger Global for about five years. The fund has a special focus on equity markets outside the U.S., which includes India, China, and South Korea. The market value of the fund’s public equity portfolio stood at $2.53 billion at the end of the first quarter, with the technology sector representing 34% of the holdings.

Karthik Sarma
Karthik Sarma
SRS Investment Management

The development comes on the heels of a securities purchase agreement that SRS Investment signed along with Chase Coleman‘s Tiger Global Management in May. The contract detailed a purchase of some 11.44 million shares by the two funds and an additional 10.90 million shares to be acquired later, the issuance of which was approved in the general meeting of shareholders on June 30. In a recent filing, Tiger Global also increased its stake in the company to 30.5% of its outstanding shares. The two funds have prior experience when it comes to investing in car-related companies as Tiger Global is a significant stockholder of Didi Kauidi, and SRS Management owns more than 9% of Avis Budget Group.

The car rental business has unique constraints in that it cannot grow too fast, otherwise it will have to bear the cost of a quickly-depreciating fleet, as well as more free cars when demand rolls down. However, Ehi Car Services Ltd (ADR) (NYSE:EHIC) has the advantage of possibly leasing these to the ride-hailing services Uber and Didi Kuaidi.

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