What did Julian Robertson teach the bunch of them anyway? The aptly named Tiger cubs, who manage large funds like Viking Global, Lone Pine Capital, Tiger Global, and Blue Ridge Capital, have a knack of returning huge . We are discussing the mid sized hedge fund, White Elm (AUM ~$500 million), which is a tiger cub by extension. The fund’s manager, Matt Lorio, was mentored by Stephen Mandel of Lone Pine Capital. White Elm has come off with a whopping gross return of 31 percent for the first three quarters of 2012.
White Elm gained most of the profits from its long portfolio, which has outperformed MSCI All Country World Index by 23 percent. The fund has designed its portfolio on a philosophy that businesses that successfully transition from analog to digital technology are going to generate returns. Based on the concept, the top performers were media companies, Sirius XM Radio Inc (NASDAQ:SIRI), Liberty Global Inc. (NASDAQ:LBTYA) (NASDAQ:LBTYB), and Kabel Deutschland Holding AG (FRA:KD8) (ETR:KD8). The fund has been profitable on 80 percent of its long investments, a figure that is impressive in itself. The laggers in Q3 were shorts in businesses with exposure to govt. budgets and in commodity and alternative energy stocks.
Going forward White Elm is raising exposure in developed markets and reducing in emerging markets. The fund is focused on bottom up investments and is steering clear of cyclical stocks. The letter discusses Lorio’s thesis on Brenntag AG (FRA:BNR) (ETR:BNR), a long position since late 2011. The company is a third party chemical distributor with a market cap of $6.6 billion. The strength of the company is its ability to serve as an intermediary for small shipments of chemicals, a market that is likely to sustain irrespective of the swings. Brenntag is the largest distributor worldwide, but its market share in the nearly $2 trillion chemical industry is less than 1 percent. This saves the company from any negative effects from the global positioning of the industry. Brenntag AG (FRA:BNR) (ETR:BNR) has an excellent management team and White Elm expects the stock price to double in the next 3 years, while the cash flow yield is expected to grow 15-20 percent per year, as compared to the present return of 7 percent.
The top five holdings in White Elm’s long portfolio are, Golar LNG Limited (NASDAQ:GLNG), Kabel Deutschland Holding AG (FRA:KD8) (ETR:KD8), Liberty Global Inc. (NASDAQ:LBTYA) (NASDAQ:LBTYB), SBA Communications Corporation (NASDAQ:SBAC), and Sirius XM Radio Inc (NASDAQ:SIRI).
