A Look at Ancient Art’s Top Long Positions For This Quarter

Ancient Art (Teton Capital) might be one of the lesser known hedge funds today, but if the fund continues to perform the way it did in 2015 it might soon turn into a stalwart of the hedge fund industry. The Texas-based firm was founded by Quincy Lee in 2001 and delivered an annualized return of 21% in the period between 2001 and 2011. Mr. Lee was an executive at a tech company (Rackspace Hosting) prior to founding Ancient Art, hence, his expertise lies in investing in the tech sector and several of Ancient Art’s top picks are represented by tech stocks. Insider Monkey’s analysis of Ancient Art’s 13F holdings in companies worth at least $1 billion shows that the 12 long positions held by the fund during 2015 delivered a weighted average annual return of 37.2%. In comparison, the S&P 500 remained flat and most large hedge funds failed to generate positive returns for their shareholders in 2015. Considering the outstanding returns generated by the fund last year, in this article we will be discussing the fund’s top stock picks going into 2016, as revealed by its recently submitted 13F filing with the SEC.

At Insider Monkey, we track more than 700 hedge funds, whose 13F filings we analyze as part of our small-cap strategy. Our research has shown that imitating a portfolio that includes the 15 most popular small-cap stocks among hedge funds can outperform the market by as much as 95 basis points per month on average (see more details here).

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#5 Twenty-First Century Fox Inc (NASDAQ:FOX)

– Shares Owned by Ancient Art (as of December 31): 1.315 million

– Value of Holding (as of December 31): $35.81 million

Ancient Art initiated a stake in Twenty-First Century Fox Inc (NASDAQ:FOX) during the second quarter and boosted it by 15% during the third quarter amid a 15.6% drop of the stock. However, while Twenty-First Century Fox Inc (NASDAQ:FOX)’s ended the fourth quarter on a flat note, the fund made no changes to its stake in the company during that period. Though the company missed revenue expectations for the last quarter and provided weak guidance, its shares have surged since its earnings release and are currently trading flat year-to-date. The EPS of $0.44 it reported for its fiscal second quarter came in-line with analysts’ expectations, but the revenue of $7.38 billion missed analysts’ projection by $150 million. Twenty-First Century Fox blamed the shortfall in film revenue and currency headwinds for its revenue miss. Jeffrey Ubben‘s ValueAct Capital held 47.32 million shares of Twenty-First Century Fox at the end of December.

#4 Charter Communications, Inc. (NASDAQ:CHTR)

– Shares Owned by Ancient Art (as of December 31): 198,865

– Value of Holding (as of December 31): $36.41 million

Similar to Twenty-First Century Fox, Ancient Art also didn’t make any changes to its stake in Charter Communications, Inc. (NASDAQ:CHTR) during the fourth quarter. Shares of Charter Communications, Inc. (NASDAQ:CHTR) have mostly traded in the $170-$190 range since it announced its merger with Time Warner Cable Inc (NYSE:TWC) and Bright House Network last May. Though they briefly broke that range on the downside a few days ago, they have bounced back and now trade down by 2% year-to-date. Charter Communications recently has announced that its proposed merger with Time Warner Cable was approved by the New Jersey Board of Public Utilities. Overall, the merger has now been approved by all states of the US except two. However, the deal still faces a lot of regulatory hurdles and opposition from competitors. On February 25, JP Morgan analyst Philip Cusack upgraded Charter Communications’ stock to ‘Overweight’ from ‘Neutral with a price target of $210. In addition, Mr. Cusack also mentioned that, assuming zero synergies between the two companies and $1.2 billion in cost savings, he expects the combined Charter-TWC to generate free cash flows of $17 per share by 2018.

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– Shares Owned by Ancient Art (as of December 31): 98,910

– Value of Holding (as of December 31): $38.53 million

AMERCO (NASDAQ:UHAL) was one of the best performers in Ancient Art’s equity portfolio during 2015. The fund initiated a stake in the company during the first quarter when shares of AMERCO (NASDAQ:UHAL) started moving higher and continued boosting its stake during the following two quarters while AMERCO’s stock continued its rally, rising nearly 40% in the first nine months of the last year. The fund booked some profits in the company right at the time when AMERCO seemed to have ended its bull run and unloaded 16% of its stake during the fourth quarter. Amid a decline in the broader market, shares of AMERCO have lost 12% so far this year. For the fourth quarter, the company reported EPS of $4.17 on revenue of $744.80 million, beating analysts’ projections of EPS of $3.95 on revenue of $716 million. Amit Nitin Doshi‘s Harbor Spring Capital initiated a stake in the company during the fourth quarter by acquiring 95,000 shares.

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#2 Interactive Brokers Group, Inc. (NASDAQ:IBKR)

– Shares Owned by Ancient Art (as of December 31): 3.2 million

– Value of Holding (as of December 31): $140.31 million

Interactive Brokers Group, Inc. (NASDAQ:IBKR) had represented Ancient Art’s top stock pick for several quarters, but it lost that spot at the end of the fourth quarter as the fund reduced its stake in the company by 10% over the quarter. Since Interactive Brokers Group, Inc. (NASDAQ:IBKR)’s stock rose by nearly 50% in 2015, it seems the fund probably reduced its stake for profit-taking reasons. Due to the turmoil in the global markets since the beginning of 2016, Interactive Brokers Group’s stock has declined by over 20% this year as investors’ fear that trading volumes may decline going forward. However, in spite of this decline the stock currently trades at a trailing P/E of 43.81, significantly above the brokerage industry average of 14.82. For its fiscal 2016 first quarter, analysts are expecting the company to report EPS of $0.37 on revenue of $377.80 million, compared to a loss of $0.22 per share on revenue of $172 million it had reported for the same quarter last year. Ted Kang‘s Kylin Management also reduced its stake in the company by 10% (to 5.18 million shares) during the fourth quarter.

#1 Alphabet Inc (NASDAQ:GOOG)

– Shares Owned by Ancient Art (as of December 31): 212,489

– Value of Holding (as of December 31): $161.25 million

Ancient Art reduced its holding in Alphabet Inc (NASDAQ:GOOG)’s Class C stock marginally, by 1,398 shares, during the fourth quarter. However, led by a nearly 25% rally in its stock during the same time, the company emerged as the fund’s top stock pick going into 2016. Shares of Alphabet Inc (NASDAQ:GOOG) have slid by 8% so far this year, but, on the back of the strong financial performance registered by the company in the past three quarters, analysts continue to remain bullish on the stock. On February 23, analysts at Pacific Crest reiterated their ‘Outperform’ rating and $910 price target on the stock. Though the company continues to generate most of its revenues through online advertising, the successes that several of its ‘moonshot’ projects have had in the last couple of months have led analysts to believe that they might be a significant contributor to the company’s top-line and act as a hedge against a downfall in its core business. Daniel Benton‘s Andor Capital Management continued to own 100,000 shares of Alphabet at the end of December.

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Disclosure: None