Hedge fund manager Philippe Laffont has surprised the market with some unexpected trades in the first-quarter of 2017, according to 13F forms filed with the SEC and just made available to the public. Laffont, who Forbes says is one of the highest earning hedge fund managers, is the founder of tech fund Coatue Management which has a portfolio value of close to $10.4 billion.
Laffont did not start his working life in investing: he studied at prestigious university MIT before going to work for McKinsey, a management consultancy firm. It was only when he moved to Spain to work for his wife’s family that he began to invest in tech stocks on the side. After realizing that tech investing was his passion, he moved to New York to work for free at a small mutual fund. This led to his job at Julian Robertson’s famous Tiger Management fund, earning him the “Tiger Cub” nickname along with fellow big-name fund managers Stephen Mandal and Lee Ainslie. Laffont set out on his own in 1999 with Coatue Management, a long/short equity fund of which he is the CEO.
The New-York based fund, which has a whopping $945 million invested in Facebook (FB), has launched a number of offshoots. There is Coatue Hybrid Fund 1, which focuses on high-growth pre-IPO startups, Coatue’s long-only fund (launched in 2013) and Coatue Hybrid Fund II which was set up to deal with venture capital tech investments and raised over $543 million when it was launched back in 2015.
And this approach appears to have been very successful- we can see that Coatue’s measured performance of 106.2% outstrips the performance of both the average hedge fund (51%) and the S&P 500 (88%). Indeed since June 2013, Laffont has overseen a portfolio gain of 108% with a very impressive Sharpe ratio of 2.84. The high Sharpe ratio (average for hedge funds is 1.22) reveals how he has managed to achieve maximum returns for minimum risk.
As a result, Laffont is ranked #19 out of a total of 202 hedge fund managers on TipRanks, which also shows that the fund achieved a 32% return last year and an average return of 22% over the last three years.
Now let’s turn to three of Laffont’s most intriguing Q1 trades:
Laffont slashed Coatue’s Apple Inc. (NASDAQ:AAPL) holding by close to 8%, leaving the fund with an Apple holding worth $422 million. The holding, which is the fund’s 11th biggest stock, has made a gain since the last quarter of 8.67%.
The iPhone maker is currently engaged in an international legal battle with its supplier Qualcomm. Apple is alleging that Qualcomm- the main supplier of modems for smartphones- is charging Apple a percentage of the iPhone to license its patents rather than the actual value of the technology. Following years of negotiations, Apple is now waiting for the court to decide the appropriate payment.
Apple has instructed its other suppliers to withhold their QCOM royalty payments- and consequently Qualcomm is now suing these four companies (Foxconn, Pegatron, Wistron, and Compal) for using its patents without paying.
Qualcomm’s general counsel, Don Rosenberg claims that Apple is abusing its position “as the wealthiest company in the world to try to coerce unfair and unreasonable license terms.” Potentially, Apple could have to cover Qualcomm for damages from its suppliers not paying royalties and breaching their QCOM contracts (in response an Apple spokesperson said “I am not aware that this is strictly correct”.)
Top Wells Fargo analyst Maynard Um– who has a Hold rating on Apple stock- says it will be difficult for these four manufacturers to go after Apple- if indeed Qualcomm wins in its legal action against them. The problem, says Um, is that these manufacturers are unlikely to want to risk damaging their relationship with Apple. In any case Um is only predicting that the trial will occur in 2019.
Five-star BMO Capital analyst Tim Long believes that Qualcomm will be successful in its fight against Apple, and that ultimately Apple will agree to reasonable licensing terms to prevent Qualcomm arguing for an outright injunction on the iPhone. Long has a buy rating on Apple with a bullish $170 price target.
Based on the 26 buy and 5 hold ratings published on the stock over the last three months, TipRanks gives Apple a Strong Buy analyst consensus rating. The average analyst price target of $162 suggests upside potential for the stock of 8% for the next 12 months.
Laffont initiated a new position in photo sharing company Snap Inc (NYSE:SNAP), which only went public back in March. He invested heavily in the stock with a $472 million holding making Snap 4.5% of the fund’s total portfolio.
However, investors are increasingly skeptical about Snap’s outlook after the stock posted a shocking loss of $2.2 billion for the first quarter. Following this news, short interest spiked by 2.2% in Snap to 16.6% of the stock held by investors says S3 Partners LLC. And S3 Partners LLC say that investors are not even bothering to cover their positions.
Snap reported revenue of $150 million in Q1, below the $158 million consensus estimate, with loss of $2.31 a share (including compensation costs) coming in far worse than the expected adjusted loss of $0.20 a share. The massive net loss was largely due to the $2 billion Snap paid in stock-based compensation employee-options following its IPO. In particular, an incredible 37.45 million shares were awarded to CEO Evan Spiegel (valued at the time at close to $1 billion, and fully realized in the Q1 earnings report). Disturbingly, Snap gave no guidance for the coming quarters leaving investors unsure how the company will develop, although analysts are predicting a full year loss for the stock of $2.86 billion.
The majority of analysts are sidelined on the stock. TipRanks shows SNAP has a Hold analyst consensus with 13 buy, 18 hold and 7 sell ratings published in the last three months. Analysts are predicting upside of 9.9% for the stock, which is currently trading at $19.90.
Laffont slashed the fund’s holding in Google parent Alphabet Inc (NASDAQ:GOOGL) by 27% to $338 million worth of shares. Since the last filing date these shares have already moved up by 11%.
Google is currently hosting its annual developers conference in California which acts as both a developer meeting point but also an important platform for the company to unveil its latest products. The latest word from the conference is that Google is bringing its own voice assistant and Siri-rival to the iPhone. However the app will need to be open for the voice assistant to work (unlike Siri which is automatically available on the iPhone).
Other exciting revelations include Alphabet’s second generation Google tensor processing unit (TPU) for artificial intelligence (AI) workloads (bad news for Nvidia); free phone calls with Google Home (bad news for Amazon Echo); new shared library capability for Google Photos (which now has half a billion users); and a project to build virtual reality headasets with Lenovo and HTC that should be ready for launch within the year.
Laffont’s move is at odds with the generally bullish market outlook on GOOGL. The stock has a Strong Buy analyst consensus rating with 21 buy and 5 hold ratings published on the stock over the last three months. The average analyst price target meanwhile stands at $1039.55 which is translates into a 10.34% upside from the current share price.