The Tiger Cubs are probably the most closely watched group of hedge fund managers on the planet. Investors are keen to keep up with their latest trades because the group has proven exceptionally skilled at identifying high-performing stocks in the past. We track public holdings of over 50 managers (46 of which are still active) in a value-weighted portfolio that allows us to monitor their performance and latest trades.

In many cases, it pays to watch their conviction stock picks. The Cubs were early in names like Apple, Baidu and more recently, Amazon, Allergan, and Netflix. Even at this moment, despite a tough Q3 for hedge funds, our Tiger portfolio is up 3.8% compared to 3.01% for the S&P 500 and a loss of 2.9% for the highest conviction stocks for all hedge funds. Tiger Cubs seem to have rebounded well after a very tough August-September.

This post focuses on their most recent trades extrapolated from the 9/30 13F filings, to get a feel what stocks the brightest minds in money management think are best positioned to outperform in the future.

Performance Overview

Here’s some more evidence that it pays to track Tiger Cub trades on the long side. Over the last decade the Tiger Cub portfolio handily outpaces the markets as measured by S&P 1500 and S&P 500. The portfolio annualized at 10.8% versus 7.5% for the S&P and did that with only slightly more volatility, leading to a higher Sharpe. The majority of that outperformance was due to picking the right stocks (stock selection skill), and NOT sizing decisions (position sizing skill) since an equally weighted version of the portfolio would have annualized at 9.6%, only slightly lower than the actual. Thus, tracking stocks these managers are buying makes a lot of sense if you are trying to identify future outperformers even without considering sizing decisions, though that also helps marginally.

Performance of Novus Tiger Portfolio (NTP) January 1st 2006 – November 30th 2015:

Consumer Discretionary Overweight

The first observation we make is that over the last few quarters the group has made a large bet on the consumer discretionary sector. It currently accounts for 28% of their aggregate long exposure and has seen a sharp increase in relative weight against the S&P 1500 (charted below).

NTP weight in Consumer Discretionary relative to S&P 1500 weight in the sector: 2006-2015:

This is encouraging to see since the group is very good at generating alpha in this sector. Data shows that they know what they’re good at and stick to it.

Returns not explained by market and sector volatility (Alpha by sector): 2006-2015:

As far individual stock picks in the sector, the third quarter saw a lot of action in Netflix and Amazon, the two largest trades by value. Seven Tiger Cubs initiated new positions in Netflix and three added to existing investments in the stock bringing the total number of Cubs invested to 13. Coatue and SRS were two managers that increased their stakes the most and Tiger Global already holds a large position, their largest in fact, followed by Amazon.

Amazon was already popular in Q2, but the cubs built on the bet in the third quarter. Three managers started new positions in the stock and six increased their investments betting on the mega-retailer to expand. Another stock that saw major buying activity is JD.com, a Chinese commerce website dubbed by some as the Amazon of China. Tiger Cubs seemed to like that analogy in the third quarter as six of them initiated new positions and six more added to positions, with a total of 16 Cubs invested in the stock as of 9/30.

On the flip side, Charter Communications, a longtime favorite for the group, saw more exits and trims than adds.

Technology Bet

From the chart above you can tell that the other sector where Cubs generate large amounts of alpha is technology. Consequently, they’re also overweight that sector, again implying that they know what they’re good at. Another reason for favoring tech is that dispersion in the sector is traditionally higher than other areas and that is important for a long/short equity strategy where “good” stocks and “bad” stocks must show a wide gap in performance for the manger to make money. The largest technology bet for the cubs is of course Alphabet (Google), and I say “of course” because this has been the case for a while. Between the two share classes (GOOG and GOOGL), 20 managers hold positions in the company. Interestingly, most managers have been adding to their already substantial positions in the third quarter. Viking Global, the largest holder by volume, were one of the few managers to actually trim their position on Q3, taking profits.

Another technology stock that continues to feel love from the Cubs is the world’s largest social network. Facebook now has 17 Cubs invested and is the third most popular stock among the group. Cubs continue to plow money into the stock as seven managers built their existing positions and two others initiated new positions.

Other Important Stocks

A whopping 12 out 20 Tiger Cubs holding Allergan have increased their bets in the third quarter. Discovery and Healthcor were among those who added the most, and both managers are also long Pfizer, makers of Lipitor and Viagra. The fact that they’re merging with Allergan means Tiger Cubs are betting heavily that through the “tax-inversion” deal the new company will be well positioned for outperformance, and thus far it’s been paying off. Together, the Cubs hold over $6.7B (21M shares) of Allergan, representing over a third of the total hedge fund interest.

Allergan: Price (top) vs. Number of shares held by Tiger Cubs:

What Has Worked Since the Filing Date

Since the filings date of 9/30 the big winner for Cubs has been Amazon while the largest detractor has been Valeant.

Attribution (color), size (% of NTP) for October – November 2015:

Largest holdings of Tiger Cubs and their position sizes as % of public portfolio:

The Novus Tiger Cub Index

Biggest winners, losers, and the highest conviction stocks among Julian Robertson’s Tiger Cubs.

Why do people follow the stock picks of Tiger Cubs? The reason is astoundingly simple – because they outperform the markets over the long term. All the training received from their patriarch, Julian Robertson, translated into a successful and repeatable research process his progeny uses again and again to compound their assets and reward their investors.

This article will focus on the highest-conviction stock picks of the group as a whole, and answers the question of how the Tiger Cub group-mind has performed in recent years.

What’s in the report?

• HISTORIC TIGER CUB INDEX PERFORMANCE
• TOP 20 HISTORIC WINNING SECURITIES
• TOP 20 HISTORIC DETRACTING SECURITIES
• TOP 50 CURRENT HIGHEST CONVICTION SECURITIES

‍

‍