Billionaire Andreas Halvorsen’s Viking Global Cuts Losses and Dumps Southwestern Energy and Teva Pharmaceutical, Still Bullish on Bank of America

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Back in 2008, billionaire Warren Buffett made a bet that hedge funds will underperform index funds over the following decade. While the bet still has around a year to run, Buffett seems to be well in the lead to win the $1.0-million bet. While the bet is only between the Vanguard 500 Index Fund Admiral Shares, which tracks the S&P 500 and five unnamed funds of hedge funds picked by Protege Partners, overall the whole hedge fund industry seems to be trailing the indexes. One group of funds that has been in the spotlight over the weak returns are so-called Tiger Cubs, protégés of legendary stock picker Julian Robertson, who underperformed the benchmarks last year, after having dominated the Street for years. One of these funds is billionaire Andreas Halvorsen‘s Viking Global, one of the biggest and most famous activist hedge funds. Viking’s Global Equities Fund lost 4% last year, according to a letter to investors. Its Viking Long Fund posted a gain of 3.9%, but still was lower than MSCI World and S&P 500 Indexes, which advanced by 9% and 12%, respectively. The fund added that it generated negative alpha on both longs and shorts.

“We are very disappointed by these results, which fall well short of our aspirations on both an absolute and a relative basis,” Viking said. 

The investor added that the weak results were mainly due to its long bets, with some energy and internet-related investments losing some ground in the fourth quarter and its positions in pharmaceutical companies also performed poorly. We already discussed some of the stocks that Viking is most bullish on based on its latest 13F filing and, in this article, let’s take a closer look at Viking’s comments about Bank of America Corp (NYSE:BAC), Southwestern Energy Company (NYSE:SWN), and Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA).

Andreas Halvorsen

Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 39.7% gains over the past 12 months and outperformed the 24.1% gain enjoyed by the S&P 500 ETFs. Our enhanced small-cap hedge fund strategy returned more than 45% over the last 12 months and outperformed SPY by more than 30 percentage points over the last 4.5 years (see details here).

Bank of America Corp (NYSE:BAC) is the only company among the three, which is still present in Viking’s equity portfolio. At the end of December, the fund held 9.43 million shares worth $208.45 million, down by 15.68 million shares over the quarter. In the letter, Viking said that Bank of America was its biggest winner last quarter, contributing 0.5% to the performance of both Viking Global Equity and Viking Long Fund. The fund pointed out that the bank “enjoys the leading market share in U.S. retail deposits and has been a conservative underwriter of credit following the financial crisis. The investor also considers that Bank of America is undervalued in relation to its peers, as the company managed to reduce costs and increase its capital base. Viking still sees upside in Bank of America Corp (NYSE:BAC), but reduced the position as the stock rallied in the weeks following the presidential election. Nevertheless, with 139 funds from our database holding $12.49 billion worth of stock, Bank of America Corp (NYSE:BAC) ranked the third most popular stock among hedge funds at the end of December.

On the next page, we’ll see why Viking exited its positions in the other two stocks.

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