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Stephen Mandel vs. John Armitage: Who is Copying Whom?

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After collating the 13F filings submitted by hedge funds for the period ended March 31, 2015, a lot of details have been unearthed, some of which cannot be readily noticed by simply looking at the figures relating to individual hedge funds. We noticed a number of similarities between the positions held by Stephen Mandel‘s Lone Pine Capital and John Armitage’s Egerton Capital Limited.  The latest 13F filings of both funds showed a focus on services stocks and both had long positions in 14 stocks as of the end of March. To provide a more helpful overview, let’s take a look at Mastercard Inc (NYSE:MA), Baidu Inc (ADR) (NASDAQ:BIDU), Priceline Group Inc (NASDAQ:PCLN), and Apple Inc. (NASDAQ:AAPL), which are some of the most important companies in which Lone Pine and Egerton held stakes.

Lone Pine Capital 2014 Q3 Investor Letter

Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole. These small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our back tests, which were conducted over the period of 1999 to 2012. Moreover, since the beginning of forward testing from August 2012, the strategy worked just as our research predicted, outperforming the market every year and returning 144% over the last 32 months, which is more than 84 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).

At the end of the quarter, both Lone Pine Capital and Egerton Capital Limited cut their stakes in Mastercard Inc (NYSE:MA). Mandel reduced his position by 36% over the quarter to 12.97 million shares valued at $1.12 billion, while Armitage cut his stake by 35% to 4.18 million shares valued at $361.13 million. Interestingly enough, both funds increased their stakes in Mastercard by almost a similar percentage during the fourth quarter of 2014. Moreover, the investors’ positions in Mastercard Inc (NYSE:MA) amass almost the same percentage of their equity portfolio (Lone Pine – 4.24% and Egerton – 4.94%). The company is a global payment services corporation with its headquarters in Purchase, New York. Mastercard’s 43.15% return on investment for the past 12 months beat the industry average of 9.41%, according to Reuters’ data. While many U.S. citizens might feel cautious going into debts, especially after the Great Recession, there is every reason to believe that credit card companies will continue to surge forward.

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