Rob Citrone

Rob Citrone’s Discovery Capital Management has recently submitted its 13F filing for the June 30 reporting period. Mr. Citrone founded his hedge fund in 1999 after successful stints at Fidelity Investments and Tiger Management. Based in Connecticut, Discovery Capital focuses on liquidity, valuation multiples, and past and potential growth in picking stocks, and prefers investing in the technology, services, basic materials, and financial sectors. Since its inception the fund has returned around 17% on average per year. According to the filing, Discovery Capital oversees a public equity portfolio valued at $8.49 billion, 37% of which is allocated to technology stocks. During the quarter, the investor initiated 46 positions, and in this article we are going to review some of its top new picks, including NetEase Inc (ADR) (NASDAQ:NTES), Magna International Inc (USA) (NYSE:MGA) and AerCap Holdings N.V. (NYSE:AER).

Discovery Capital Management

Professional investors like Mr. Citrone 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 and have underperformed the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds generated higher returns than their large-cap picks, which is where most of their money is invested and why their performance as a whole has 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 118% and beaten the market by more than 60 percentage points since the end of August 2012 (see more details).

Rob Citrone
Rob Citrone
Discovery Capital Management

Discovery Capital Management acquired 1.10 million shares of NetEase Inc (ADR) (NASDAQ:NTES) during the second quarter and the position was worth $159.63 million at the end of June. NetEase Inc (ADR) (NASDAQ:NTES) is a $15.2 billion Chinese Internet company that operates 163.com, one of the largest IT content providers in China, with over 196 million visits per month. In its most recent financial report, NetEase posted net profit of around $220 million, while reporting a net foreign exchange loss of $3.5 million, which came from the company’s foreign currency-denominated bank deposits and short term loan balances. Keeping in mind the possible rate rise from the Fed later this year, as well as the devaluation of the yuan, the headwinds can only get stronger in the near term. Overall, the stock of NetEase was down by 6.4% after the latest earnings release, mostly on weak margins. Better-than-expected revenue of $760 million, which beat estimates by $70.47 million, wasn’t enough to improve the stock’s subsequent performance. After the first six months of the year, William B. Gray’s Orbis Investment Management held 11.45 million shares of NetEase Inc (ADR) (NASDAQ:NTES) valued at $1.66  billion.