These Hedge Funds Were All Buying Alibaba in the 2nd Quarter

Many hedge funds were entering positions in the Chinese company

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Aug 18, 2021
Summary
  • Many investors see value in Alibaba.
  • However, not all funds are positive.
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I recently observed that it appears Mohnish Pabrai (Trades, Portfolio) has followed Charlie Munger (Trades, Portfolio) into Alibaba Group Holding Ltd. (BABA, Financial). I also highlighted that Guy Spier's Aquamarine Capital initiated a position in the Chinese e-commerce company during the second quarter of 2021, according to the firm's 13F report.

I highlighted the actions of these investors because they are some of the most followed and successful value investors practicing the art today. However, my research shows they were not the only ones buying Alibaba in the second quarter.

Searching through 13F reports

Hedge fund 13Fs can be a great place to find investment ideas. Unfortunately, these reports only provide limited information. They do not tell us when the positions were acquired or at what price. They also only reveal U.S. equity holdings, so there would be no way of telling if an investor sold Alibaba's New York-listed stock and bought the Hong Kong-listed equity (I believe this is what Li Lu (Trades, Portfolio) has done, though I do not have any proof of the fact).

Considering the current geopolitical environment, some investors may think this is the best course of action.

Despite the drawbacks of 13Fs, they can be an excellent barometer of hedge fund sentiment.

Broadly speaking, it looks as if hedge funds are highly positive on the outlook for the e-commerce giant.

Alongside the investors outlined above, Bill Miller's firm, Tom Russo (Trades, Portfolio), Tweedy Browne (Trades, Portfolio), Steven Romick (Trades, Portfolio), Leon Cooperman (Trades, Portfolio), Bruce Berkowitz (Trades, Portfolio)'s Fairholme Capital and Lee Ainslie (Trades, Portfolio)'s Maverick Capital all initiated or added to holdings of Alibaba in the second quarter.

However, none of these investors have dedicated as much of their equity portfolio as Munger has done at the Daily Journal (DJCO, Financial). He has allocated nearly 18% of the corporation's portfolio. Other allocations range between 0.19% and 5%.

On the other side of the spectrum, some hedge funds were actively reducing their holdings of the company during the second quarter.

Two firms in particular stand out. Chase Coleman (Trades, Portfolio)'s Tiger Global Management reduced its investment in the company by nearly 6% during the quarter. Meanwhile, David Tepper (Trades, Portfolio)'s Appaloosa Management divested around 50% of its position.

Why is this notable? Well, Alibaba was a top five holding for Appaloosa. It remains a top 10 holding, but it sits below other investments like Occidental Petroleum Corp. (OXY, Financial) and T-Mobile US Inc. (TMUS, Financial). Amazon.com Inc. (AMZN, Financial) is the second-largest holding in the equity portfolio overall, according to the latest 13F.

Appaloosa isn't as well known as Tiger Global. This hedge fund has become a significant Silicon Valley investor in recent years, and it is a big believer in technology. More importantly, the hedge fund was one of the first to see the opportunities in the Chinese technology sector over 10 years ago.

I should note the hedge fund remains a significant investor in the sector. Its largest holding at the end of June was JD.com Inc. (JD, Financial) with a 7.7% portfolio weight. This holding was not changed meaningfully in the period.

Still, it is notable that this experienced Chinese equity investor is not particularly interested in Alibaba. It is not even a top 20 holding in the equity portfolio. Companies like Amazon and Microsoft Corp. (MSFT, Financial) feature much higher in the portfolio.

Together, these two holdings are four times the size of the Alibaba investment.

As I noted previously, 13Fs should not be used to make trading decisions, although they can indicate investor sentiment. Looking at the information above, I would say growth investors are cooling on Alibaba as an investment, but value investors are jumping at the opportunity to invest in the company.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure