Viking Global 2014 Q2 Investor Letter

Viking Global’s 2014 Q2 investor letter is out. Last May I talked to the director of fixed income and absolute return at the China Investment Corporation. This is the Chinese sovereign wealth fund with $600 billion in AUM. When I asked him what he thought the best US hedge fund is, he said, “Viking Global without a shadow of a doubt”.

According to Viking Global’s 2014 Q2 investor letter, its long only fund outperformed the market during the first half of the year. Its long/short fund, Viking Global Equities, returned 6.4% during the first half of this year. Its long only fund, Viking Long Fund, delivered an 9.5% gain for the same period whereas S&P 500 index returned 7.1%. Most hedge funds can’t outperform in a rising market because they are hedged. Luckily, Viking Global has a long-only fund which is comparable to the long only S&P 500 index.

Here is what the fund said about its performance:

Performance this quarter was solid. We produced a positive 4.6% long-short spread in VGE and generated meaningful alpha on the long side. On an unlevered basis, VGE’s long portfolio increased 9.4% and outperformed the average return for investable stocks in our universe by 4.7%. Healtcare, media, IT-related positions accounted for nine of the top 10 long winners in both funds. Our shorts did not perform as well as we would have liked and rose 4.9% on an unlevered basis. …The following were our top 10 longs, in order of size, for both VGE and VLF on June 30:

10. Capital One Financial (COF)

9. Baidu (BIDU)

8. Pioneer Natural Resources (PXD)

7. Thermo Fisher Scientific (TMO)

6. LyondellBasell (LYB)

5. Lowe’s (LOW)

4. Illumina (ILMN)

3. Valeant (VRX)

2. Walgreen Co. (WAG)

1. Viking Global didn’t reveal the identity of its largest position in its latest 13F filing. But we know what it is. If you are interested in finding out this stock please send a 2014 Q2 hedge fund investor letter that isn’t publicly available to meena@insidermonkey or become a premium subscriber.

Viking Global also announced in this investor letter that they are launching a new fund, Viking Global Opportunities, “designed to accommodate illiquid opportunities”. Here is what the fund said:

“In our last quarterly letter, we described our growing number of private investments. As of June 30, the portfolio contains positions in seven unlisted companies (three of which were made in the second quarter) plus one restricted stock totaling $695 million of cost and $1,069 million of marked-to-market value across VGE and VLF. The flow of pre-IPO investment opportunities continues to increase, driven in part by the growing preference of young enterprises to delay tapping the public markets for capital. Given the scale of their funding requirements, and because their traditional sources, including venture capital firms and merchant banks, have not been fully meeting their liquidity needs, these companies are increasingly turning to alternative providers of capital, such as Viking. We are optimistic that idea flow will remain robust and that we can put additional capital to work in compelling investments going forward.”

P.S. We don’t think Viking Global is the best hedge fund but it is a very good one. Our small-cap hedge fund strategy actually performed better than Viking Global’s long only fund. Insider Monkey’s small-cap hedge fund strategy gained 100.4% over the last 2 years vs. 48.2% gain for SPY.