“I was deciding whether to return to management consulting (my first career) or to go into investment banking; Julian gave me an opportunity to come to New York to work for Tiger”
Lee Ainslie worked for Julian Robertson’s Tiger Management, one of the earliest hedge funds to be founded. Utilizing a value-oriented approach to investments, his success launched the explosion of the hedge fund industry. As referenced in a previous article (http://www.gurufocus.com/news.php?id=126342), many of these analysts would go on to launch their own hedge funds after training and tutorage from Robertson. These new fund managers became a generation known as “tiger-cubs”, so eloquently referring to the roots of their training. Ainslie served as a managing director for Tiger Management and as a technological analyst for 3 years.
“….Evaluating management teams (of companies you were considering investing in) is critically important.”
Maverick Capital at its very core is a long/short equities fund. They invest in companies utilizing a fundamental bottoms-up approach to analyze equities. Ainslie operates with a long term view on value, much like his mentor, and this can be seen in their capital funding requirement. For the most part, his fund is widely closed to most investors, as he prefers dedicated and sophisticated investors. They prefer capital from investors with ties and influence on corporate boards across several spectrums of industry, in order to maintain and grow their business network. Furthermore, he typically has investors commit to a three year period, in order to achieve long term maximum value. Each position comprises no more then 5-8% of the overall portfolio, and is analyzed not upon quarterly earnings, but on a large annualized view with an optimal investment holding of 1-3 years out.
In terms of shorting equities, Lee Ainslie stated that: “Our short exposure is achieved by shorting individual stocks, which I think is increasingly unusual these days. But to us, it’s critical, because we want to add value on both the long side and the short side. If you use market-related indexes to create your short exposure, by definition it’s not going to add value.”
In terms of performance, Maverick Capital returned 11.2% vs. the S&P benchmark of 15.1% in 2010. Much of this loss was attributed to their short holdings, as is stated in their 2010 shareholder letter (http://neoalpha.blogspot.com/2011/02/maverick-capital-2010-annual-letter.html), “nine of our ten largest losses on the year were in short investments”. Since 1995 however, Maverick Capital had an annualized return of 14% vs. the S&P 8.1%.
Maverick Capital’s portfolio composition for the two most recent quarters of 2010 is shown in the following table. Comparatively speaking, Lee Ainslie increased his holdings in technology and financials by 3.40% and 3.90% respectively. Furthermore, he initiated a minor position in the basic materials sector. Conversely, he reduced his holdings in consumer services, health care, consumer goods, and industrials by a relatively modest amount.
Overall Portfolio Composition
Oil & Gas
"Either this security deserves incremental capital at the current price point or it doesn't - in which case, let's sell it and put the money to work in a security that deserves that incremental capital."
Maverick Capital manages a portfolio with an aggregate value of $9.43 billion in 76 equities. 19.76% of their overall portfolio is invested in the following five equities. Two notable changes occurred in this period. First, JP Morgan became the newest addition to their portfolio, with an aggregate value of $363 billion. Second, Maverick Capital increased their position in Citigroup by 11.92%. Corning became their largest holding vs. Apollo of their last quarter, and there was a small reduction in Apple holdings.
Top Five Holdings for Q4
Marvell Technology Group
JP Morgan Chase
Total Value of Portfolio
Top Five Holdings for Q3
Total Value of Portfolio
"We have made the mistake more than once of not investing in a company with a great management team because of valuation concerns - only to look back a year later and realize we missed an opportunity because the management team made intelligent, strategic decisions that had a significant impact."
Of their top five holdings, the CEOS of both JP Morgan and Apple are legendary in their respective field. Jamie Dimon of JP Morgan was widely seen as the leader of the financial sector during the recent financial crisis, while Steve Jobs is seen as the pioneer of the Apple Brand. Maverick Capital maintained their position in Apple, while initiating a large position in JP Morgan for their Q4 quarter.
Corning is a manufacturer of specialty glass and ceramics. From LCD screens, to diesel filters, their operations span a multitude of sectors. Corning’s market capitalization is $33.38 billion, with shares trading at $21.31. Corning is the largest holding of Maverick Capital, totaling at 4.03% of the aggregate portfolio.
Corning has a P/E ratio of 9.50, a P/B ratio of 1.68, and a P/S ratio of 4.92. For their fiscal year ending in 12/10, their revenues totaled $6.6 billion, with a net income of $3.556, a margin of 53%. Their EPS for the year was $2.25.
Corning recently announced the appointment of Jeffrey Evenson to the position of SVP, whose new role is to primarily focus on strategic growth initiatives. In addition, Corning announced the introduction of a new line of reusable liquid containers primarily used in the life sciences. Citigroup maintained its holding rating of Corning.
GuruFocus rated Corning with the business predictability rank of 1 star.
Marvell Technology (MRVL)
Marvell is a manufacturer of products in the wireless, digital, storage and computer accessory sectors. One of their most widely known operations is their production of processors for the Blackberry. Marvell trades at $16.11 with a market capitalization at $10.48 billion. Marvell Technology is the 2nd largest holding of Maverick Capital, compromising 3.97% of the overall portfolio.
Marvell has a P/E ratio of 11.98, a P/B ratio of 1.88, and a P/S ratio at 2.87. Their most recent earnings yielded revenues at $3.6 billion, with a net income at $904 million. This equated to a margin of 25.03% with earnings per share at $1.34.
In light of their weaker then expected earnings, CFO Hosein stated that “We are shifting our business away from PC-based stuff to non-PC based and those businesses are very successful ... Don't judge this by just one or two quarters,” in growth markets such as China. Nonetheless, Citigroup announced a reduced target price of $24 for Marvell Technology.
GuruFocus rated Marvell Technology with the business predictability rank of 2 stars.
Citigroup is a financial services company catering to both personal and business consumers. Citigroup’s market capitalization is $130.16 billion, with shares trading at $4.47. Citigroup is the 3rd largest holding of Lee Ainslie, comprising 3.96% of Maverick Capital’s portfolio.
Citigroup has a P/E ratio of 13.4, P/B ratio of .8, and a P/S ratio of 1.6. For their fiscal year ending in 12/10, they reported revenues at $111 billion with net income at $10 million, yielding a profit margin at 9 %. Their earnings per share for the fiscal year were $.35.
Citigroup recently announced a 10-1 reverse split, which would yield their stock around $44.47 per share, all things equal. This would allow more institutional investors to invest into Citigroup due to financial regulations concerning stocks under $5 a share.
GuruFocus rated Citigroup with the business predictability rank of 1 star.
Apple manufactures and markets a variety of products and software to a diverse audience around the world. Apple products are household staples from the IPod to Mac notebooks. Apple’s market capitalization is $322.90 billion, with shares trading at $350.49.
Apple has a P/E ratio of 20.07, a P/B ratio of 6.69, and a P/S ratio of 4.93. Revenues were at $65 billion for the fiscal year, with a net income of $14 billion. This yields a margin of 21.5%, along with unparalleled earnings at $15.15 per share. This success is not out of the ordinary, as for the last 5 years, Apple has experienced tremendous growth, with revenues growing at 32.1%, and earnings at 56.4% respectively. Like most tech companies, Apple does not pay out dividends at the moment.
With the launch of their Ipad 2 recently in the US, and the launch of the Ipad 2 in several countries today, a bold report has been made declaring Apple will be bigger then IBM next year. Forrester Research in addition stated, they will exceed HP in two years, and thus become the largest technological company in the world.
GuruFocus rated Apple with the business predictability rank of 1 star.
JP Morgan Chase (JPM)
JP Morgan is an international financial services firm that provides a variety of services to both corporate and personal clients. JP Morgan’s market capitalization is $184.64 billion, with shares trading at $46.32. JP Morgan is the latest addition to his portfolio, with an aggregate value of $363 billion.
JP Morgan has a P/E ratio 11.64, a P/B ratio of 1.06, and a P/S ratio of 1.77. Their most recent earnings report had a net income of $17.37 billion on revenues at $102.694 billion. This yields a profit margin of 16.9% with earnings at $3.97 per share.
JP Morgan has been appointed by Invesco to offer 17 of their ETFS on the Mexican stock exchange. In addition, they raised their dividend to 25 cents, which some say, is a sign of a recovery in the financial sector.
GuruFocus rated JP Morgan with the business predictability rank of 1 star.
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