“Tiger Global’s three largest stock investments—retailer Amazon.com Inc., video-streamer Netflix Inc. and Chinese e-commerce firm JD.com Inc.—are down big this year. They comprised nearly half of its portfolio at the start of the year. Tiger Global also maintains stakes in private companies that are at risk in a cooling environment for technology startups, such as Indian e-commerce firm Flipkart and transportation service Uber, said people familiar with the situation. And it has a number of less-liquid, or less easily tradable, positions in China, one person said.”
First of all, if we assume that Tiger Global hasn’t changed its 13F holdings throughout the first quarter, we can easily calculate that its 13F portfolio went down only 9.2% during the first quarter. Tiger Global’s top 5 13F holdings and their returns during the quarter were as follows:
|Amazon.com Inc. (AMZN)||$2.16 billion||-12.2%|
|Netflix Inc. (NFLX)||$2.06 billion||-10.6%|
|JD.com Inc. (JD)||$1.92 billion||-17.9%|
|Apple Inc. (AAPL)||$1.12 billion||4%|
|The Priceline Group Inc. (PCLN)||$0.97 billion||1.1%|
Two thirds of Tiger Global’s 13F portfolio was invested in these 5 stocks. It is true that Amazon.com Inc, Netflix Inc., and JD.com Inc. performed worse than the market but Apple Inc. and Priceline Group outperformed the market and the entire portfolio underperformed the S&P 500 Total Return Index by only 10.5 percentage points. Given that Tiger Global hedge fund underperformed the S&P 500 Total Return Index by more than 23 percentage points, there are other factors that can explain its disappointing Q1 performance.
Before going into the details of Tiger Global’s poor performance, I’d like to share my opinions on journalists’ obsession with poor hedge fund numbers. Hedge funds’ stock picks, especially small-cap stock picks, historically outperformed the market by a large margin (see the details here). This is a fact. Hedge funds were able to do this because their portfolios were significantly different from a mutual fund’s portfolio that secretly tracks the S&P 500 Index. Hedge funds aren’t usually closet indexers which is why the performance of the stocks in their portfolios sometimes beat the market by a large margin and sometimes underperform the market by a large margin. If you believe hedge funds’ stock picks should always outperform the market, you know nothing about investing.
If your goal as an investor is to outperform the market, I believe one of the best strategies to use is imitating certain stock picks of hedge funds. Sure, they will occasionally perform terribly; nobody has a crystal ball that can predict the future with 100% accuracy. Actually if you can pick outperforming stocks with a 60% accuracy, you can generate returns that are similar to Warren Buffett’s historical returns. Hedge funds collectively spend billions of dollars every year to research stocks and if anyone has a chance in generating Buffett-like returns, that is hedge funds. So, don’t let the journalists cloud your judgment. Last year they were penning articles about Greenlight Capital’s large losses. This year they aren’t covering Greenlight’s returns as much because Einhorn’s stock picks are actually beating the market. This year’s hedge fund schadenfreude story has been Bill Ackman’s losses. I don’t remember seeing this many articles about Pershing Square’s returns back in 2014 when the fund returned 40%.