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.

Whitney Tilson

April 1, 2014

Dear Partner:

Top-Performing Hedge Fund Saba Sees Opportunities In CDS: Exclusive

Saba CapitalSaba Capital's flagship hedge fund returned around 70% of last year, putting it in the ranks of the top-performing hedge funds for the year. Q1 2021 hedge fund letters, conferences and more Saba, which is managed by US hedge fund star Boaz Weinstein, managed to take advantage of the turbulence that swept the markets in 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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