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Valiant Capital Betting Big on China in 2016, Reduces Exposure to U.S Tech Stocks

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California-based, global long/short equity hedge fund Valiant Capital recently submitted its 13F filing with the Securities and Exchange Commission for the reporting period of December 31. The fund was founded by Christopher R. Hansen, an ex-Managing Director of Blue Ridge Capital, in March 2008. As per the latest available data, Valiant Capital manages $4.0 billion of investors’ capital; however, according to its latest 13F filing, less than half of that was invested in public U.S equities at the end of December, with that total being $1.88 billion. The filing also revealed that 43% of Valiant’s U.S equity portfolio consisted of stocks from the information technology sector and that its top-ten holdings alone accounted for 77.15% of the value of its equity portfolio. In this article we are going to analyze the five most notable moves made by the fund in U.S equities during the final quarter of 2015.

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).

Christopher R. Hansen
Christopher R. Hansen
Valiant Capital

Let’s begin with Chinese search giant Baidu Inc (ADR) (NASDAQ:BIDU), in which Valiant Capital initiated a stake during the fourth quarter. The fund purchased 284,700 shares of the company, worth $53.82 million as of December 31. Shares of Baidu Inc (ADR) (NASDAQ:BIDU) have formed a classic inverted V-shaped pattern since September of last year. After a swift move from $140 to near $220 during October and November, they have again fallen back to the $140 level. According to technical analysts, if the stock can hold on to the lows it made in September, it can go higher in the short-term. On the fundamental front, despite the downturn in the Chinese economy, analysts who track the stock remain optimistic about the company’s future, citing its dominance in the Chinese search market and the growth in its online-to-offline (O2O) business. William Von Mueffling‘s Cantillon Capital Management bought 11,097 shares of Baidu Inc (ADR) (NASDAQ:BIDU) during the fourth quarter, increasing its holding in the company to 2.23 million shares.

Chinese travel portal Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) was another new addition to Valiant Capital’s portfolio during the fourth quarter. The fund bought nearly 1.44 million shares of the company during that period, valued at $66.65 million as of the end of December. Shares of the company have been on a consistent downtrend since it completed a 1-for-2 reverse stock split on December 1 and are currently trading down by 21.5% in 2016. According to market experts, a large part of the decline that the stock has seen is solely due to the rout in the Chinese equity markets during the last few weeks and has nothing to do with the company’s fundamentals. This claim is reinforced by the fact that 18 of the 25 analysts who track Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP)’s stock currently have a ‘Buy’ rating on it. The reason so many analysts are bullish on Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) is because, notwithstanding China’s domestic troubles, travel spending in the country rose by 19% during 2015 and is expected to triple by 2020.

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