Last August Walgreen’s stock price fell hard after announcing that it wouldn’t use the acquisition of Alliance Boots to move its tax base outside the US, making it one of Viking Global’s big losers for the quarter. But the hedge fund decided to stand by its position and Walgreen’s rebounded from $59 to the mid $70s by the end of the year (currently trading at $83.62) making it one of Viking’s best performing positions for 2014.
In a year that forced plenty of hedge funds to issue apologies to their clients, Andreas Halvorsen’s Viking Global Equities (VGE) fund was up 13.4% last year, according to a letter to investors obtained by ValueWalk, and the Viking Long Fund (VLF) was up 17.2%.
Dan Loeb's Third Point returned 11% in its flagship Offshore Fund and 13.2% in its Ultra Fund for the first quarter. For April, the Offshore Fund was up 1.7%, while the Ultra Fund gained 2.3%. The S&P 500 was up 6.2% for the first quarter, while the MSCI World Index gained 5%. Q1 2021 hedge Read More
Viking Global shows that it knows not to sell at the bottom
Since Walgreens Boots Alliance had such a low starting point in the fourth quarter to recover from, it’s no surprise that it was the top performer for both VGE and VLF, but it was also VFL’s top performer for the year. Alibaba did slightly more work for VGE contributing 3.3% to annual gains.
The difference is that Walgreens Boots Alliance is among Viking’s ten largest positions, while Alibaba doesn’t crack the top 20. Other major positions include Illumina Inc, AstraZeneca, Valeant, Actavis, Pioneer Natural Resources, China Mobile, Intesa Sanpaolo, Canadian Pacific, and Air Products & Chemicals.
Pioneer Natural Resources was the biggest 4th quarter loser for both funds, and the worst in 2014 for VLF. It’s no surprise that an oil and gas E&P company got slammed by the collapse in oil prices, but what is surprising is that Viking is confident that Pioneer will recover.
“Relative to its peers, it has a very attractive reserve profile and a large inventory of undrilled well locations,” Halvorsen writes. “While we recognize that the oil price drop has lowered the company’s earnings and growth potential near term, it is our opinion that the quality of its asset base remains best-in-class. In fact, we continue to believe that our thesis holds true even at lower oil prices.”
With energy companies slashing capex, undrilled well locations are at best a long-term asset, but considering Viking has already taken the hit from owning Pioneer while oil prices fell, refusing to sell at the bottom may be the right call.
Consumer staples, health care outperformed for Viking Global
Most of Viking’s gains in 2014 came from long positions in North America, followed by Asia ex-Japan. At the same time, short positions in North America were the biggest detractors as you would probably expect. Health care was the top performing sector for both funds in 2014 and the best performing sector for VLF in the fourth quarter, passed by consumer staples for VGE. Financials was the worst performing sector for VGE (quarter and year), while VLF lost the most in the energy sector (also quarter and year).
(N.B. charts below are for VGE)
The letter states:
On January 1, Viking Global Opportunities launched with $1.5 billion and currently is fully invested in a portfolio that replicates VGE’s most liquid longs and shorts