The second quarter for Tiger Global was mixed but mostly mixed if slightly muted to the upside, as the fund’s “long positions lost money” but the “short positions were profitable,” according to a second quarter investor letter reviewed by ValueWalk.
Short-side winners included retail and consumer names
Tiger Global (TGI) offshore and onshore share class were both up 0.8% in the second quarter, while the Tiger Global Long Opportunities (TGLO) was up net 14.5% for offshore investors but down -2.4% for US investors. 1.4% offshore and down 2.4% onshore, according to the fund documents. The problem is year to date the losses continue to range from -21.4% in TGI onshore (-16% offshore) and -16.5% in TGLO onshore (-11.8% offshore).
Subtracting from performance on the long side were names including JD.com, which started in a protracted downtrend in January, tried and failed to gain momentum in April and went on a protracted downtrend leading into Brexit but found support and has moved higher recently.
Priceline and Apple Computer were also negative impacts for the tech-based hedge fund. Amazon provided a positive contribution in the wake of its earnings report, delivering accelerating earnings growth despite a generally muted profit picture.
On the short side, the winners were found in retail and consumer named stocks.
Tiger reduced exposures in the 2nd half, continues to like Priceline, Charter
After challenging first quarter performance ranging from down near -22% in TGI and -14% in TGLO, Chase Coleman’s fund “reduced exposure levels” while continuing to “manage the portfolios with an emphasis on bottom-up stock picking.” Exposures dropped to an average 125% gross and 12% net in TGI and 75% in TGLO.
Despite losing money on Priceline, Tiger remains optimistic about the travel consolidation firm’s prospects going forward. “The company benefits from low supplier concentration given the extremely fragmented hotel market globally and its relationships with over 800,000 hotels, vacation homes and urban residences,” the letter said. “Superior customer conversion enables the company to spend more per click in paid marketing channels, further extending its dominant market share in online accommodations globally.”
During the Brexit market sell-off Tiger picked up additional shares of Priceline. While travel generally gets hard hit during challenging economic environments, firms such as Priceline that can aggregate flagging traffic become even more important to travel companies, helping them drive market share gains.
The fund also likes Charter Communications on the long side, pointing to that ever sweet-sounding “pricing power” and consolidation theme:
Charter Communications one of the two largest Internet and PayTV service providers in the US, controlling approximately 40% of the cable footprint following its recently completed acquisitions of Time Warner Cable and Bright House. Along with Comcast, which controls another 40% of the market, cable has entered a new phase where the dominant companies control large parts of the ecosystem, allowing for economies of scale in research and development, content costs and capital spending. In addition, cable’s superior product offerings across both Internet service and PayTV are driving significant operational momentum, market share gains and pricing power. Charter’s recently completed acquisition of Time Warner Cable will allow the company to implement its customer-focused strategy across Time Warner’s historically undermanaged business, resulting in meaningful improvements in revenue growth, EBITDA margins and free cash flow. The company’s network footprint positions it well for technology changes like 5G wireless, and its flexibility in packaging content for customers should make the business relatively immune to over-the-top content consumption. The company’s management team, led by John Malone and Tom Rutledge, is best in class, shareholder-oriented, and highly economically incentivized to drive stock price returns. The company plans to use its substantial free cash flow to repurchase a large percentage of the shares that are currently outstanding, yielding an attractive valuation on future free cash flow per share. On our numbers, we think Charter’s stock price can double in the next three to four years.
In terms of operations there is a change in compliance, the hedge fund stated:
In June 2016, Greg Seidell was named Tiger Global’s Chief Compliance Officer, replacing Neil Schwartz, the firm’s former CCO, who resigned in June to pursue a new opportunity.
While Chase Coleman does not mention Derek Jeter the hedge fund concludes with an admission and a tease:
At Tiger Global, two of our core cultural tenets are intellectual honesty and continuous improvement. We know there will be periods when we perform poorly and make mistakes, and we strive to be honest with ourselves and you, our investors, about what we have done well and what we have not. If there is a silver lining in negative performance, it is the opportunity to learn and improve. We believe that by continuously iterating, as we have in the past, we will become even stronger as an organization
There are many exciting secular changes expressed in our portfolio and others we are actively researching. While we cannot tell you exactly when the markets will be better suited for our style of investing or when our portfolio will generate the returns we are accustomed to, we are highly confident in our team and our ability to act decisively when we see compelling opportunities. As always, we remain committed to our strategy of conducting deep, fundamental research and to our objective of generating superior risk-adjusted returns over the long term.