Li Lu (Trades, Portfolio)'s hedge fund, Himalaya Capital Management, made a few notable changes to its U.S. portfolio in the fourth quarter. This is based on the hedge fund's latest 13F report, which details U.S.-listed common equity positions.
For those who aren't familiar with 13Fs, hedge funds that own at least $100 million worth of U.S.-listed stocks are required to file a 13F form with the SEC 45 days after the end of each fiscal quarter. This report provides a snapshot into the world of hedge funds, listing their equity positions as of the quarter's end, but it has some limitations. It only shows U.S. equity positions and does not include credit, cash or international equity holdings.
This means the report is limited in scope, especially for global hedge funds like Himalaya Capital which primarily invest in non-U.S. markets. Indeed, the Himalaya's 13F only details $2.7 billion of U.S. equity holdings, although we know it manages around $30 billion for clients around the world. Still, this report does provide some insight into Li's U.S. portfolio, especially as the value investor tends to keep his ideas close to his chest.
Buying tech and bank stocks
According to the latest 13F report, the most prominent position in Himalaya's portfolio at the end of 2021 was Micron Technology Inc. (MU, Financial).
The fund manager started acquiring shares in this company back in the fourth quarter of 2019 and has steadily increased his position. The firm owns around 11.5 million shares. This position was first acquired when the stock was trading in a range of $40 to $50, suggesting the value investor has more than doubled his investors' money after the company's recent performance. The Micron holding comprises around 40% of Himalaya's U.S. equity portfolio.
According to the limited information we have, the second-largest U.S. position for the firm is Bank of America (BAC, Financial). This position makes up around 25% of the U.S. equity portfolio, and the value investor was increasing his stake in the fourth quarter of 2021.
It is not surprising to see Bank of America in Li's portfolio in many ways. It is a favorite holding of his mentor Warren Buffett (Trades, Portfolio) and his close friend Charlie Munger (Trades, Portfolio).
Himalaya bought the position in the first quarter of 2020, and the holding when unchanged until the fourth quarter of 2021. In the fourth quarter, Li and his team increased the position by 18%, suggesting that they believe the bank is undervalued compared to its earnings power over the next few years.
The firm also increased its position in Facebook owner Meta Platforms (FB, Financial). Himalaya boosted this holding by 53%, taking the stock up to 11% of the U.S. equity portfolio. The position first appeared in the portfolio in the second quarter of 2020.
There are only six holdings in Himalaya's U.S. equity portfolio, according to the firm's 13F report. This suggests that the hedge fund has not been finding a lot of value in the U.S. equity market over the past few years.
Selling Pinduoduo
One company that was booted out of Himalaya's equity portfolio in the last quarter was the U.S. listing of Chinese e-commerce group Pinduoduo Inc. (PDD, Financial). The fund owned around 360,000 shares in the company at the end of the third quarter of 2021, but it seems as if Li and his team no longer own the shares as of the end of the fourth quarter.
That said, as the fund has significant Chinese investments, it could be the case that it has sold the U.S. equity listing in this business to acquire a stake on a different exchange.
Li has a much deeper understanding of the Chinese equity market than many other U.S. investors, which gives him a competitive edge, especially when it comes to finding opportunities in the fast-growing economy.
Considering Himalaya's U.S. positioning, one could assume that the hedge fund has exposure to similar companies and sectors in China. This is just speculation on my part, but it seems the fund manager thinks there is value in microchips, banks and social networks.
