Fresh off the release of Q3 2017 hedge fund ownership data, this piece dives into the latest hedge fund trends. IPOs, FAANG+, and more.
Another hedge fund filings day has come and gone. First, the SEC released thousands of 13F filings from investment managers who disclosed their September 30th holdings. Next, Novus collected, compiled, and analyzed this information by feeding it into the Hedge Fund Universe (HFU), a value-weighted portfolio of some 1,500 hedge fund (HF) managers identified and vetted by Novus. This portfolio provides our clients insight into HF positioning and trading across the industry.
We highlight a few large trades to our clients as soon as filings are released, and then we continue the discussion with in-depth research in weeks to come. While this quarter did not show a large change in sector shifts, today we’d like to highlight a few stories and securities that are being discussed across the industry.
FANG+: FB, AAPL, AMZN, NFLX, GOOG, GOOGL, AABA, BABA, MSFT
The FANG trade and every iteration of it (hence the +) is an ever-popular discussion in the HF industry, and has led to the creation of indices that track these names exclusively. Although people love pointing to how FANG contributes to HF portfolios, we see an increasing separation among managers across these names. Last quarter we highlighted this disagreement among managers—some added these popular names while others detracted or exited. This quarter we saw a similar trend, with managers hand selecting certain FANG or FANG+ names rather than going for the complete set. We will follow up with a more detailed research piece in the coming weeks.
Recent Mergers: DowDuPont and Scripps Network
DWDP: HFs piled into DOW after the company won EU approval for a merger with DuPont at the end of March. US approval came on June 15, and the merger was completed August 31. As of September 30, HFs owned 5.91% of S.O.. Major owners were Glenview $1.12B, Third Point $1.04B, Trian $867MM, and Och-Ziff $626MM.
SNI: Scripps Network, owner of HGTV and Food Network, was purchased in late July by Discovery Communications (owner of Discovery Channel and Animal Planet). HF fillings increased from June to September, rising from 12.61% S.O. to 16.37%. The large holders include many event HFs like Pentwater $311MM, Carlson $157MM, and Alpine $143MM.
Activists: General Electric/Baker Hughes and Etsy
GE & BHGE: The transaction that combined GE’s oil and gas business with Baker Hughes finalized in July, with GE owning 62.5% of the resulting company, and the rest publicly traded under BHGE. As of the 9/30 filings, there was one large activist invested in each. Trian held roughly $1.7B of GE and ValueAct held $1.15B of BHGE. Highfields increased their stake in Baker to $370MM. Quant funds also represented significant HF ownership.
BHGE’s future is uncertain; on November 13th, GE’s CFO told reporters that GE seeks “exit optionality,” according to Bloomberg.
ETSY: Since December 2016, HF ownership has gone from 23.34% of S.O. to 33.54%. The largest purchases from last quarter are Starboard Value $72MM, Conatus $57MM, and Citadel $44MM. Cadian ($50MM) and Tiger Global ($4.6MM) have cut their positions. Tiger Global is still the largest HF holder. Part of this increase in HF ownership stems from TPG Group, Dragoneer Investment Group, and Black and White Capital launching an activist campaign in May to push for a new CEO. ETSY recently beat earnings estimates in November.
IPO Update: SNAP, Altice, Blue Apron, and Despegar
While there were many IPOs during the year, few drew large hedge fund engagement. A few managers were even involved in certain initial public offerings, but have since exited.
SNAP: HF ownership of S.O. shifted from 4.07% with 34 managers to 5.53% with 25 managers. Tybourne $207MM and SRS $58MM entered and increased their position, while Lone Pine ($110MM) and Balyasny ($38MM) exited and decreased.
ATUS: The first filings for Altice came in during June, when 46 managers reported the name, representing 4.61% S.O.. This has shifted to 28 managers with only 3.06% S.O.. Zimmer Partners $21MM and Scopia $11MM added to their positions, while Lone Pine ($229.28MM) and Jericho ($27.3MM) exited.
APRN: Blue Apron was hurt after Amazon’s Whole Foods acquisition, and since then managers continued to exit the name. Four HFs own 1.67% of S.O., down from 2.13% and 14 managers in June’s filings. The managers who exited had less than $6MM in market value respectively: Laurion, Millennium, JANA, Monashee, 683 Capital, HBK, and Alyeska.
DESP: The newest addition to this year’s list is actually a popular one with HFs. It is the first Argentine IPO of 2017 and is an online travel company, a category which has been popular in previous quarters among HFs. Expedia has a 16% stake from an investment in 2015. Twenty-one managers report holdings in Despegar, which represents a whopping 50.19% of S.O.. The managers include Tiger $966MM, Two Creeks $21MM, SCGE Management $19MM, and Millennium $12MM. This position complements Tiger’s Priceline position, which is its second largest publicly filed position.
These securities have underwhelmed YTD. Some managers exited to realize gains from the initial IPO and others are investing for the long term. As these names underperform it may become a buying opportunity for oversold names, especially if they can change the headwinds into tailwinds, or at least alter the narratives circulating their stocks.
We will continue to monitor these trends—from FANG, to activist trades, to hedge fund responses to IPOs—throughout Q4 on the Novus research blog, and we’ll also continue to walk our clients through insights utilizing this public data. Continue to follow us for these updates, and start looking forward to the Q4 filings update in February.
The HFU is accessible to Novus clients for further analysis.