China-focused hedge fund Tiger Pacific Capital recently submitted its first 13F filing with the Securities and Exchange Commission (SEC), revealing a U.S equity portfolio worth almost $110 million as of December 31. The fund was founded by Run Ye, Junji Takegami and Hoyon Hwang in 2012, with seed money provided by hedge fund legend Julian Robertson. Prior to founding Tiger Pacific Capital, all three co-founders worked at now-defunct Tiger Asia Management. According to Tiger Pacific’s 13F filing, its U.S equity portfolio consisted of long positions in only six stocks at the end of December. However, the top five alone amassed over 99% of the value of the fund’s highly-concentrated equity portfolio. Hence, in this post we are going to focus only on those five stocks and try to understand what makes the fund so bullish on them.
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).
#5 Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP)
– Shares Owned by Tiger Pacific Capital (as of December 31): 96,700
– Value of Holding (as of December 31): $4.48 million
Let’s start with Chinese online travel services provider Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP). The stock of the company is down by 32% since it completed a 1-for-2 reverse stock-split on December 1. While a major portion of that decline can be directly attributed to the slump in the broader Chinese market, some of it is also tied into investors’ fears that Chinese consumers will cut down on travel spending due to the downturn in the Chinese economy. However, analysts feel those fears are unfounded, as despite the relative gloom in the Chinese economy last year, travel spending in the country grew by 19% and is expected to triple by 2020. In addition, analysts also think that due to the company’s dominant market position, it will be a major beneficiary of the expected growth in online hotel reservations in China. Billionaire Ken Fisher‘s Fisher Asset Management may also share the same view, which would explain why it increased its position Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) by 8% to 8.84 million shares during the fourth quarter.
#4 JD.Com Inc (ADR) (NASDAQ:JD)
– Shares Owned by Tiger Pacific Capital (as of December 31): 580,504
– Value of Holding (as of December 31): $18.73 million
China’s second-largest e-commerce company JD.Com Inc (ADR) (NASDAQ:JD) was Tiger Pacific Capital’s fourth-largest equity holding at the end of December. The downturn in the Chinese economy has taken a heavy toll on the e-retailer, with its shares trading down by nearly 30% year-to-date. However, the company is trying to fight against the downturn by focusing on increasing its market share. Its recently launched financial arm, which will focus on providing credit to small businesses and consumers, raised $1 billion in financing on January 18. Moreover, like its counterparts in the U.S, the company is also testing drone deliveries to expand its outreach in rural China. Taking these developments into account, on January 22, analysts at Nomura upgraded JD.Com Inc (ADR) (NASDAQ:JD) to ‘Buy’ from ‘Neutral’ and also raised their price target on the stock to $35 from $22.
Tiger Pacific Capital’s top three stock picks are uncovered on the next page.