Kynikos Associates, led by legendary Yale graduate Jim Chanos, is a New York City-based hedge fund famous for its short positions. Chanos is described as “a master of short selling”, and previously held short positions in doomed companies like Enron and Worldcom. His fund, founded in 1985, applies a fundamental analysis approach and strives to find companies with unreported or underestimated losses and then keep those short positions over a longer period until the company buckles under their weight. However, Kynikos does not only keep short positions, it also has a public equity portfolio valued at $212.76 million as of March 31, with its long positions being 45% tied up in the finance sector and 23% in technology. We’ll look at Chanos’ top picks from the latter sector in this article, which consist of Apple Inc. (NASDAQ:AAPL), Akamai Technologies, Inc. (NASDAQ:AKAM) and Fortinet Inc (NASDAQ:FTNT).
Professional investors like Chanos 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 more than 142% and beaten the market by more than 84 percentage points since the end of August 2012, and by 4.6 percentage points in the first quarter of this year (see the details).
So, let’s start first withApple Inc (NASDAQ:AAPL), a company often on the forefront of our collective consciousness. During the first quarter, Chanos decreased his stake in the technology giant by 33% to 53,532 shares with a value of $6.66 million. Apple Inc (NASDAQ:AAPL), with its impressive track record, got off to a strong start this year and is up by nearly 15% year-to-date, however shares have stalled now for four months, and are actually down during that stretch, leading investors to wonder when the next growth spurt in shares will come and what will trigger it. We do know it won’t be Apple Music, which we wrote about last week, and which hasn’t affected the stock in any positive way; in fact it was met with a resounding yawn. On June 17, rumors also begun circulating regarding the Apple Watch, which will soon be available in Apple Stores supposedly, in limited supplies. Thus far the Watch has only been available through online orders. Jim Chanos is of course not the only shareholder of Apple Inc (NASDAQ:AAPL); others include billionaires Carl Ichan and Ken Fisher, who hold 52.76 million and 10.81 million shares respectively.