British financier and philanthropist Andrew Law manages Caxton Associates LP; a hedge fund with a portfolio valued at $2.21 billion. Law has made several intriguing changes to his holdings in the fourth quarter of 2016, which earned him an average return of 5.69%. Over the last three years, Law had an annualized return of 14.52%. In terms of measured performance, we can see that the fund comes in below the S&P 500 (46.94% vs 53.47%) but significantly above the average hedge fund portfolio (at 24.21%).
Recently Law made headlines when he said that the “industry is inappropriately sized to deliver on clients’ return expectations” given the “unwelcome” growth in industry assets since the financial crash. In lieu of this, Law cut management fees for clients from Jan 1 2017 to 2.2-2.5% and a 27.5% cut of profits- still at the high end of the industry.
But is the global macro fund’s investment strategy- placing bets on broad international trends- delivering the returns to justify such high fees? Here we examine three of Law’s interesting Q4 portfolio moves- he made substantial additions to his Advanced Micro Devices, Inc. (NASDAQ:AMD) and Amazon.com, Inc. (NASDAQ:AMZN) holdings while completely eradicating his NVIDIA Corporation (NASDAQ:NVDA) holding.
Advanced Micro Devices, Inc.
In the last year, chipmaker AMD has been busy making a comeback. After a long hiatus AMD has finally developed the technology to compete with big names like Intel and Nvidia with its Ryzen central processing unit (CPU) and Vega graphics processing unit (GPU). In fact there are rumors swirling around the market that a new, and potentially highly profitable licensing deal, has just been signed between AMD and Intel for AMD’s GPU tech.
Law upped the fund’s AMD holding by an impressive 170.91% to 406,100 shares with a reported value of $4.61 million. And the fund has already gained from the addition- AMD stock has shot up by 16.93% since the last quarter. However, the analyst average price target on TipRanks for AMD of $10.56 (-20.54% downside from the current share price of $13.29) indicating that a price correction could wipe out some of these recent gains.
Law increased his position in eCommerce giant Amazon by 152.22% to 11,350 shares with a reported value of $8.51 million. Since the last quarter, the shares have already gained 11.54%. In fact the move reflects the markets very bullish outlook towards Amazon which has a strong buy analyst consensus rating on TipRanks with 30 out of 32 analysts issuing buy ratings on the stock in the last 3 months.
Amazon has been enjoying success from its profitable cloud computing business Amazon Web Services (AWS) as well as the Amazon Prime subscription service. AWS brought Amazon a whopping $12.2 billion in sales for the year, up 55% from the same period the year before.
Law is less bullish on the outlook for tech company Nvidia, as he sold out 100% of the fund’s Nvidia position with the sale of 16,100 Nvidia shares. The market is very divided on the outlook for Nvidia- analysts like CSLA’s Chris Caso are nervous about NVDA’s steep valuation combined with increased operating costs for 2017. Citron Research, for example, sees risks for Nvidia that include data center competition, gross margin sustainability and increased competition from custom silicon and GPU workarounds. On the other hand, Nvidia has impressed with strong data center growth and recently reported solid 4Q16 results.
The analyst consensus rating for NVDA on TipRanks is moderate buy although the hedge fund confidence signal reveals a negative hedge fund sentiment with famous fund manager George Soros already dropping his Nvidia position in Q3.