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Should You Follow Discovery Capital’s Lead and Reduce Exposure To Sprint (S), T MOBILE (TMUS) & Two Other Stocks?

Billionaire Rob Citrone founded Discovery Capital Management in 1999 and has built it into a financial behemoth that oversees $25.5 billion in assets under management as of March 2016. Citrone is a so-called Tiger Cub, having worked for famed hedge fund manager Julian Robertson. Discovery Capital focuses on macro bets and invests in emerging markets, and had an equity portfolio valued at $4.72 billion at the end of the third quarter. Like most hedge funds, Discovery Capital had a disappointing 2015, with Discovery Global Opportunity down by 0.6% while the smaller Discovery Global Macro posted a loss of 5.8%.

At Insider Monkey, we have established our own metric to analyze hedge fund performance ourselves: we look at the performance of the fund’s stock picks that have a market cap in excess of $1 billion in the quarter following their latest 13F filings. According to our data, 53 of Discovery Capital Management’s stock picks for the third quarter qualified as $1 billion or greater companies on June 30, and those stocks generated a weighted average return of 14.72% in the third quarter, making the fund one of the best performers for the quarter. In this article we’ll take a look at the fund’s investments in Sprint Corporation (NYSE:S), YPF SA (ADR) (NYSE:YPF), T MOBILE US INC (NYSE:TMUS), and Western Digital Corp. (NASDAQ:WDC).

Discovery Capital Management

First we are going to take a look at one of Discovery Capital’s top bets: Sprint Corporation (NYSE:S). During the third quarter, the fund’s management made a bold move, having dumped 40% of their holding. According to its latest 13F filing, the fund held 23.8 million shares worth $158 million at the end of September. The stock had a very good third quarter, having surged by 46.4% from June to September. At the end of the previous quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, unchanged from the first quarter. The largest stake in Sprint Corporation was held by Discovery Capital Management, followed by PineView Asset Management with a $13.8 million position. Other investors bullish on the company included Gotham Asset Management, Three Bays Capital, and GAMCO Investors.

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Rob Citrone and his team have continued to reduce their investment in YPF SA (ADR) (NYSE:YPF), as Discovery Capital’s holding fell by 23% to 5.87 million shares. According to regulatory filing, this position was worth $106.9 million at the end of the quarter. The stock had a disappointing third quarter, having ended it 4.4% in the red. Heading into that quarter, YPF shares could be found in the portfolios of 26 of the hedge funds tracked by Insider Monkey, down by 16% from the previous quarter. More specifically, Discovery Capital Management was the largest shareholder of YPF shares, followed by FinePoint Capital, which amassed a stake valued at $62.9 million. Knighthead Capital, Arrowstreet Capital, and Point State Capital also held valuable positions in the company.

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We’ll check out two more of the fund’s stock picks on the next page.

Next up is T MOBILE US INC (NYSE:TMUS). Citrone and his team decided to reduce their exposure to this telecom stock as well, having dumped 56% of their position. At the end of September, Discovery Capital held 1.35 million shares worth approximately $63.2 million. Let’s have a closer look at the latest hedge fund action encompassing T MOBILE US INC (NYSE:TMUS), which returned 8% during the third quarter.

Heading into the third quarter of 2016, a total of 52 of the hedge funds in our database were bullish on T-Mobile, unchanged from the first quarter of 2016. Among these funds, Viking Global held the most valuable stake in T MOBILE, which was worth $604.3 million at the end of the second quarter. On the second spot was Soroban Capital Partners which amassed $389.4 million worth of shares. Moreover, Marshall Wace LLP and Jericho Capital Asset Management were also bullish on the stock.

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Western Digital Corp. (NASDAQ:WDC) has fallen out of favor with the management of Discovery Capital Management, as the fund’s stake in the company was slashed by 72% during the third quarter. According to its latest 13F filing, Discovery held just 751,950 shares of Western Digital worth close to $43.9 million. Over the course of the third quarter, Western Digital Corp. (NASDAQ:WDC) registered a positive return of 24.8%, providing shareholders with a handsome profit, which is what may have prompted Discovery to exit nearly 3/4 of its position.

During the second quarter, the popularity of the stock among the funds tracked by Insider Monkey registered a boost, with 48 funds holding the stock at the end of June, up by 14% from the first quarter of 2016. Discovery Capital Management was again the largest shareholder of the stock, followed in this case by quant-fund Two Sigma Advisors, which amassed a stake valued at $116.9 million. First Pacific Advisors LLC, Appaloosa Management LP, and Sirios Capital Management also held valuable positions in the company.

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Disclosure: None

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