Manager Monday: Miura Global Management

About our Data

Everything mentioned in this post is sourced exclusively from public data, including the manager’s profile, simulated performance and all other analysis and commentary. The data used here omits the short side, non-equity securities, many non-US securities and all non-public information such as actual fund performance.

Introduction

Run by Pasco Alfaro, Miura Global is a long/short equity fund with ties to Julian Robertson. They are one of the Tiger Seeds we track in the Novus Tiger Cub Overlap matrix, a free interactive heat map of positions and pockets of similarity for the group of managers. In addition, Miura has made the list of top stock pickers over the last three years in Consumer Discretionary, according to our skill-based ranking report slated to be released next week.

Just as importantly, in a report that came out earlier this year Miura ranked as one of the two most consistently skilled managers for the period of 2010 through 2014. They earned high marks in overall security selection, win loss ratio and position sizing skill which are the three skill sets we will talk about here. It comes as no surprise that we decided to do a deeper dive into Miura Global to see what makes the manager so consistently successful. In short, the reason for their success is skill, specifically the three skill sets we have identified in our prior work. For the analysis we use only public data and the analytics of the Novus Alpha Platform. Let’s dive in.

Performance

The fund’s long book shows strong performance since January 2007, the earliest of our filing records for the manager.

On a rolling 12-month basis, Miura Global shows steady and consistent outperformance over the market, with the exception of a larger draw in 2008 followed by a recovery and return to outperformance. Compare this to a returns profile of a successful activist manger and you’ll see a striking difference. Miura does not depend on short periods of massive outperformance, rather longer periods of steady outperformance. We see this trend with other Tiger Cub and Tiger Seed managers as well. What is driving this performance?

1. Stock selection skill

Running a historical sector attribution analysis we see that 60% of the manager’s long sector exposure is now concentrated in Consumer Discretionary (has been growing over the recent years) with Staples and IT jointly making up another 30%:

In a table below we can see why this is a good thing for Miura and their investors. Miura knows what they’re good at and stick to it. Attribtution analysis shows that their two largest areas of allocation are also their two largest areas of skill as evidenced by high security selection (the portion of P&L generated by picking stocks that outperform their benchmarks). For instance, from this table we see that of the 104 percentage points of return sourced from Consumer Discretionary (right most column), 30 percentage points came just from Miura’s stock picking (highlighted column). In IT the security selection portion is responsible for over half the P&L.

It’s interesting to note that their sector allocation decisions have themselves added value, all with the exception of financials have positive contributions to P&L (compared to what they would have made with the same allocations as the benchmarks). Below is a chart of contribution from security selection plus sector allocation effect; the chart takes out the effect the general markets had on the portfolio.

2. Win/Loss and Batting Average:

There’s more evidence that the manger knows what they’re good at and stick to it. The best performing sectors by Win/Loss are again Discretionary and IT. When Miura takes a bet on a Consumer Discretionary name, on average, they are paid 3.6x more on their winners then they give up on their losers. The second highest ratio belongs to IT; a 3.5x win/loss.

3. Positon Sizing

I can’t stress enough how important position sizing skill is to managers. Many good managers have become great due to the ability to express their conviction in stocks and size their names appropriately. Many others are doomed to mediocrity due to a lack of this very ability. In one of the most essential analytics we show our clients, we compare the actual portfolio returns against a simulated equally-weighted version of the same portfolio. Observe the consistent outperformance of the actual vs. the shadow portfolio for Miura:

If we examine the performance of two portfolios closely we can see that the actual version had significantly higher returns and similar volatility. Also, in almost every down month (2008 is the exception) the security weights of the portfolio helped limit loss. This is strong evidence of effective risk control at the position sizing level.

Conclusion

Outperformance is always great, but to make a judgment call on a manager you need to tap data beyond returns. As we have seen with Miura there is strong evidence that a large portion of the outperformance has come from skill, specifically stock selection, win/loss ratio, and position sizing skill. Can you say that about your managers? Our clients can. We run similar simulations and analysis for private client portfolios on a daily basis and the edge that has granted them is remarkable.