While noting relative value plays in creative destruction, the hedge fund sticks to long positions in both new media and old
Steve Mandel’s Lone Pine Capital noted that its performance has been significantly outpaced by the market, particularly in U.S. dollar terms. In a letter to investors reviewed by ValueWalk, the firm, which operates four primary hedge fund strategies, noted they are seeing is a greater degree of creative business destruction now than at any time during their investment careers, and perhaps since the industrial revolution.
The main drivers of this “upheaval” are developments centered near the internet and mobile communications, the investment letter noted, while pointing to long and short relative value investment opportunities. But looking at Lone Pine’s positions its hard to see where they see the short end of the trade.
As business models rapidly change, a new set of global leaders could emerge, replacing dinosaurs of the past that fail to adjust to the new world of unfiltered communication and the low cost to entry that allow internet entrepreneurs to compete with previously unassailable industry Goliaths.
“Search and social media have allowed advertisers to more precisely target consumers, rapidly driving ad dollars online and away from print and broadcast media,” the investment letter observed, as it discussed its social media positions and exposure to China through Baidu Inc (ADR) (NASDAQ:BIDU).
Lone Pine: Google / Baidu relative value trade
A Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) / Baidu Inc (ADR) (NASDAQ:BIDU) relative value trade is a tough trigger to pull, although it will be interesting to watch as the fight for a new world leader could emerge out of this pack. Google is aggressive at laying new pipes to allow high speed Internet connections to challenge the dominate monopoly of mass communications control exhibited by Comcast Corporation (NASDAQ:CMCSA), Time Warner Inc (NYSE:TWX) and the other traditional media firms clinging to life support through a cable connection to their customers. Some hedge fund have noted the old media / new media relative value trade as having a protective benefit during crashes and being a potentially shrewd three to five year play.
“Broadband internet connections have transformed the consumption of media, permitting content to be watched on demand and not exclusively in predetermined time windows,” the letter said as it touted Netflix as leading this charge and is a position in our portfolio.
Certain hedge funds have noted behind the scenes that Netflix, Inc. (NASDAQ:NFLX) could be a leader at being the next big mass media play, disrupting the industry and placing the mass media manipulators on the sidelines of a new unfiltered digital revolution. Lone Pine didn’t say this, as such discussions have been primarily made behind the scenes at this point.
Lone Pine’s investments in the old and new media models
Lone Pine, however, appeared to have investment feet in both the old and new media models, with investments in Alibaba Group Holding Ltd (NYSE:BABA), Priceline Group Inc (NASDAQ:PCLN) and Facebook Inc (NASDAQ:FB) as well as old line cable firms such as Charter Communications, Inc. (NASDAQ:CHTR) and Comcast Corporation (NASDAQ:CMCSA). While one might think these might be interesting relative value plays, Lone Pine noted the difficulties of the long / short strategy in a zero interest rate environment as it reported generally weak results across the board. The report did specifically mention the impact of quantitative easing as a factor lifting all stocks.
What will really be interesting is to see if this “hedge” fund lived up to its billing in October, as many managed futures programs have.
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