Tilson Up 8.4% In Q1 With Gains From HLF, CALL, SODA; Buys Fannie Mae

Tilson Up 8.4% In Q1 With Gains From HLF, CALL, SODA; Buys Fannie Mae
Whitney Tilson

Whitney Tilson’s Kase Capital had a strong Q1 with a 8.4% return, according to a shareholder letter reviewed by ValueWalk. It appears from the letter to investors that Whitney Tilson has initiated a new position in Fannie Mae, which has become a very popular hedge fund stock. Below is an excerpt from Tilson’s letter.

Play Quizzes 4

Whitney Tilson

April 1, 2014

Dear Partner:

This Long/ Short Equity Firm Sees A Time-Arbitrage Opportunity In This Pest Control Merger

PestYost Partners was up 0.8% for the first quarter, while the Yost Focused Long Funds lost 5% net. The firm's benchmark, the MSCI World Index, declined by 5.2%. The funds' returns outperformed their benchmark due to their tilt toward value, high exposures to energy and financials and a bias toward quality. In his first-quarter letter Read More

Our fund rose 1.7% in March vs. 0.8% for the S&P 500 (INDEXSP:.INX). Year to date, our fund is up 8.4% vs. 1.8% for the S&P 500.

Fueling our fund’s returns during the month on the long side were magicJack VocalTec Ltd (NASDAQ:CALL), Sodastream International Ltd (NASDAQ:SODA) and Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B), which rose 12.2%, 11.7% and 7.8%, respectively. In addition, our short book benefited from widespread weakness (at last!) among the riskiest stocks. For example, our basket of five 3D printing stocks were all down 17%-31%, Herbalife Ltd. (NYSE:HLF) and World Acceptance Corp. (NASDAQ:WRLD) dropped 14.0% and 21.7% respectively upon news of impending regulatory investigations, and other assorted dreck like Unilife Corp (NASDAQ:UNIS) (-12.0%) and Lumber Liquidators Holdings Inc (NYSE:LL) (-12.6%) tumbled as well.

Two long positions were negatively impacted, however. First, Netflix, Inc. (NASDAQ:NFLX) fell 21.1%, though the pain was mitigated by the fact that I’ve been harvesting profits all the way up (I sold as high as $433 in February; it closed yesterday at $353.03), so it was less than a 3% position at the start of month. Secondly, Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) retraced most of February’s 53.4% gain, dropping 25.6%. It’s still been a nicely profitable position since I established it in November – and I expect it will continue to be – but I sure wish I’d taken some profits when it spiked over $6 in early March.

Netflix and Fannie Mae are good case studies in one of the most difficult – albeit high-class – problems that investors often face: what to do when a long position rips upward. There are competing clichés: on the one hand, let your winners run; on the other, pigs get fed and hogs get slaughtered. In general, over the past 15+ years, I’ve left a lot of money on the table by being too quick to trim my winners – Netflix being Exhibit A – so I’m trying to improve in this area, without sacrificing my valuation and risk management discipline. Here’s hoping that I face this dilemma often going forward!

I have our fund positioned the way I want, both in terms of exposures and individual stocks, and it’s nice to see the markets rewarding this over the past two quarters.


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