Andreas Halvorsen‘s Viking Global is one of the rare hedge funds that has a monstrous amount of capital in its equity portfolio (over $26 billion), yet holds it all in a relatively concentrated number of stock picks (just 63 long positions as of September 30). This makes studying the firm’s latest moves far more rewarding than the average large fund’s, as only a handful of stocks are deemed worthy of a place in Halvorsen’s equity portfolio each quarter. In this article we’ll study the top five stocks that gained entry to said portfolio in the third quarter and try to see what Halvorsen likes about these stocks.
We start with Hilton Worldwide Holdings Inc (NYSE:HLT), the fifth-largest new holding of Viking Global on September 30, with the position amounting to 15.33 million shares and being valued at over $351 million. Hilton shares dipped close to their 52-week low near the end of the quarter, which likely raised Halvorsen’s interest in the iconic hotel brand, just as it prompted the company’s own insiders to buy shares on their weakness. Halvorsen was a former shareholder of Hilton Worldwide Holdings Inc (NYSE:HLT), selling out of his prior position in the stock during the second quarter, so he has knowledge of the company and clearly felt comfortable going long again at a reduced price.
Shares of Hilton Worldwide Holdings Inc (NYSE:HLT) did rebound quickly in the fourth quarter, but recently gave back some of those gains after the Marriott International Inc. (NASDAQ:MAR), Starwood Hotels & Resorts Worldwide Inc. (NYSE:HOT) merger was announced. Relative weakness in the stock may persist in the near term over concerns that Blackstone Group, the company’s largest shareholder with over 450 million shares, will cash out more of its position, as it did in the second quarter, selling over 90 million shares. Halvorsen is now the largest shareholder of the company of the funds that we track, followed by Clifford Fox’s Columbus Circle Investors with 4.93 million shares.
Netflix, Inc. (NASDAQ:NFLX) ranks as the fourth-largest new position in Viking Global’s portfolio. Netflix is also not a completely new investment for Halvorsen, who went long Netflix, Inc. (NASDAQ:NFLX) in the second quarter of 2014 and sold off the position two quarters later, with the stock languishing during that time. He surely regrets selling when he did in hindsight, as the stock enjoyed a monster first half of 2015, but in this case Halvorsen likes what he sees even at a higher entry and has decided to get back on board. Halvorsen’s new position consists of 4.52 million shares valued at over $466 million. Tiger Global Management, helmed by fellow Tiger Cub Chase Coleman, also loves Netflix, Inc. (NASDAQ:NFLX), which stands as the firm’s top pick.
Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) is a new position for Viking Global, and the third-largest portfolio addition of the fund during the third quarter. The purchase of over 8.87 million shares of Teva by Viking Global should not be totally surprising, given its purchase of Allergan, Inc. (NYSE:AGN)’s generics drug business in the quarter (Allergan just happens to be Viking Global’s top stock pick). Halvorsen clearly liked the deal for both companies, as he also bumped up his stake in Allergan slightly during the quarter. The broader market also loved the deal from both firm’s perspective, as each stock made big gains after the announcement of the $40.5 billion deal. In Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)’s case, shares gained over 16% on the day that news of the deal broke, with the pharmaceutical company also revealing that it would give up its pursuit of Mylan Inc. (NASDAQ:MYL) in light of the purchase. Billionaire John Paulson also loved the deal made by Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA), buying nearly 16 million shares of the company in the third quarter.
Professional investors like Halvorsen spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. However, we also know that the returns of hedge funds on the whole have not been good for several years, underperforming the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds performed far better than their large-cap picks, which is where most of their money is invested and why their performances as a whole have been poor. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned 102% and beaten the market by more than 53 percentage points since the end of August 2012 (see the details).
We have come to Halvorsen’s top two new picks, which we’ll look at on the next page.