Lone Pine - Stephen Mandel
$27 Billion AUM, 32 Holdings
Lone Pine Capital, founded by Stephen Mandel, is a secretive multibillion technology-centric fund with $27.53B in AUM (assets under management) and 32 holdings. Lone Pine has generated annual returns of 19.5% since their inception in 1997, compared with the S&P 500’s annualized return of 9.36% during the same period. Mandel was mentored by famed manager Julian Robertson, founder of Tiger Management, making him one of 30+ “Tiger Cubs” alongside top performers like Chase Coleman, Philippe Laffont, and Glen Kacher.
Performance & Holdings Value
Lone Pine has returned a cumulative gain of 395.2% since 2012, compared with the S&P 500’s return of 258.9%. The average hedge fund returned 137.8% during the same period, underperforming both the S&P 500 and Lone Pine.
Circled Blue Line: Lone Pine Cumulative Returns (395.2%)
Purple Line: S&P 500 Cumulative Returns (258.9%)
Orange Line: Average Hedge Fund Cumulative Returns (137.8%)
Lone Pine increased their holdings value by an insignificant 0.1% compared to Q4 of 2020, although Lone Pine’s holdings value is currently at an all time high, signaling Mandel’s bullish stance and attitude towards the economy and their holdings.
Lone Pine’s Website & Investing Strategy
Take a look at Lone Pine’s simplistic website homepage. I wasn’t lying when I said Lone Pine is secretive; there are only 3 links available to nonmembers: Forgot Password?, Responsible Investment Policy, and Privacy Policy. This is in contrast with the typical user friendly fund management website with About Us, Press Releases, and SEC Filing information.
According to SmartAdvisor, Lone Pine has 11 clients, with an average client having $2.7 billion invested with Lone Pine. Keep in mind that “1” client may represent an entire corporation. When the results speak for themselves, marketing will pay for itself as well.
Mandel employs 2 strategies when making an investment: holding an investment in order to compound value over time or holding an investment in anticipation of a future catalyst. Mandel explains below:
"We enter an investment we expect to compound value for a long time, and we expect to hold them for a long time. Sometimes we make a mistake, and we don't hold them for a long time, or sometimes price gets ahead of where we think the return profile is, and we sell it. But we have other types of investments where there's a catalyst for realizing value. When new management comes in, an acquisition, that's a catalyst for driving value... In general, we would probably need to find some type of catalyst for the realization of that value, and if something is abjectly cheap relative to its intrinsic value, we would absolutely look at it. We would go through a process of trying to understand the management, what they're trying to do, to realize value.”
Current Portfolio
Lone Pine has a Top 10 holdings concentration of 51.96% and a Top 15 holdings concentration of 67.58%, making them a very concentrated fund, especially when considering their AUM of $27.53B. This places Lone Pine in the top 1% of hedge funds based on AUM. The typical hedge fund with $15B+ AUM usually has 100 or more positions.
Lone Pine holds a Top 10 portfolio position for 3.9 quarters on average and a Top 20 portfolio position for 4.8 quarters on average. See below for Lone Pine’s portfolio as of Q1 2021:
Out of Lone Pine’s Top 10 positions, only 2 aren’t tech-related: LB and UNH. LB is better known for their flagship brands, which include Victoria’s Secret, Pink, and Bath & Body Works. UNH is the largest healthcare insurer based on members in the US, boasting a 70 million membership count.
SHOP, the #1 largest position, was first acquired in Q1 of 2019 at an average estimated price of $374.82. SHOP trades at $1,512 today, up 303% from Lone Pine’s initial purchase. A major beneficiary of Covid-19 as retailers transitioned their stores online, SHOP has increased 38.2% YTD, outpacing the S&P 500’s 17.3% return. Over 1.7M businesses use Shopify’s cloud-based commerce platform, including Tesla, Gymshark, and Anheuser-Busch InBev. I have personally used Shopify’s platform and was very impressed with the simplicity and ease in designing a website and managing payments.
SHOP reported revenues of $988M in Q1 of 2021, up 110% YoY. Gross payments volume (GPV) surged to $17.3B, up 42% YoY from $7.3B. SHOP has beat consensus revenue estimates by 7%+ for 4 straight quarters, beating estimates by an impressive 16% in Q1. As a reminder, any revenue beat over 10% is considered as an extremely positive sign.
Lone Pine increased their current MSFT position by 23.95% at an estimated average price of $229.10 in Q1, making it their second largest position. The consistent technology cash-cow reported revenues of $41.7B in Q1, beating consensus revenue estimates for the 9th quarter in a row. Lone Pine has a long history with MSFT, first purchasing shares in Q4 of 2013.
Lone Pine’s ownership of MSFT seems to be rocky; they significantly cut their position during Q1 of 2020 but have been gradually adding shares back since, as MSFT’s price has skyrocketed in the process.
Lone Pine’s existing FB position was increased by a dramatic 58.36% in Q1 at an estimated average price of $283.85. FB trades at $352.70, up 24.2% from Lone Pine’s purchase price. FB was first added to Lone Pine’s portfolio in Q3 of 2014.
FB reported revenues of $26.17B in Q1, up 48% YoY and MAUs (monthly active users) of 2.85B people, up 9.6% YoY. However, a point of concern is that in the US and Canada, Facebook’s daily active users (DAUs) remained flat at 195M people for the second quarter in a row. Many skeptics believe that Facebook is primarily used by middle and old-aged people, and that in the future, the younger generation will not use Facebook, which would have a negative impact on the stock. I don’t believe this is the case, as Facebook controls Instagram, WhatsApp, and Oculus as well, which is used by a variety of users of all ages. Mark Zuckerberg is also a visionary CEO that has proved his ability to adapt and innovate; did I mention he’s only 37 years old?
Many analysts issued many cautious remarks about Facebook’s ad business after Apple issued a new feature called App Tracking Transparency, which prompts users with a popup to allow or reject the ability for an app to track your data and keystrokes across others apps and the internet. This is concerning to Facebook, as a majority of their revenue comes from ads. However, investors don’t seem too worried about this, as Facebook is up 30.4% YTD.
"Apple may say that they're doing this to help people, but the moves clearly track their competitive interests," Facebook CEO Mark Zuckerberg said in January during the company's fourth-quarter earnings call. Apple CEO Tim Cook says the change is rooted in the company's belief that "users should have the choice over the data that is being collected about them and how it's used."
Significant Portfolio Changes
Lone Pine nearly doubled their current AMZN position in Q1, increasing their total stake to $1.49B. This suggests that Mandel believes AMZN has further room to expand, even with the departure of Jeff Bezos as CEO.
Lone Pine increased their current DASH position by a staggering 197.91%; it now represents 3.2% of their portfolio. DASH is the largest position of fellow Tiger Cub, Philippe Laffont.
Lone Pine isn’t afraid of liquidating a position quickly, which is evident in their Q1 sells. DOCU, ADSK, HUM, and FIS were dumped completely, while GPN’s portfolio weight was reduced by 32.94%. When in doubt, Mandel gets out.
Lone Pine’s portfolio and holdings value reiterates their bullish stance on the technology industry. Mandel’s concentrated fund has generated consistent, index-beating annual returns since its inception in 1997, making Mandel a very well known and respected investor amongst other fund managers.
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For Your Eyes Only - Hedge Fund Insights
Disclosure: Of the equities mentioned above, I am long MSFT, AMZN, FB, MELI, and SQ.
Source 1: Steve Mandel on Investing & Philosophy
Source 2: Shopify’s Largest Customers
Source 3: Microsoft Earnings History
Source 4: Facebook Q1 2021 Earnings
Source 5: Lone Pine SEC Filings
Great read, I wonder if Lone Pine can continue the stellar performance that they've had the past 3 years. A favorite fund of mine as well.