Hedge fund manager, John Lykouretzos of Hoplite Capital Management, has made some bold moves in the fourth-quarter, as 13F forms filed with the SEC and recently made public reveal. He cut the $1.95 billion fund’s Tesla Inc (NASDAQ:TSLA) holding, slashed the Apple Inc. (NASDAQ:AAPL) holding and initiated a major new position in Bank of America Corp (NYSE:BAC)
Lykouretzos, who is ranked #46 out of 202 hedge fund managers tracked by financial accountability engine TipRanks, is known as a “Tiger Cub” because he is one of a group of high profile individuals (Lee Ainslie and Steve Mandel for example) who used to work for hedge fund king Julian Robertson’s Tiger Management fund.
The founder of Hoplite has been generating some impressive returns. The fund drove an annualized return of 16.49% over the last three years, with a 14.62% return last year. In fact, the finance-focused fund’s measured performance of 81.10% is significantly higher than the measured performance of the average hedge fund portfolio (51.58%) although still lower than the S&P 500 (84.2%).
Established in 2003, Hoplite manages fundamental, global long/short and long-only equity funds, which seeks to achieve absolute returns while minimizing risk and the volatility of returns. Hoplite uses a research-intensive and bottom-up investment process that results in independently selected longs and shorts across most industry sectors and geographies.
So where has this investment process led the fund to in Q4? Let’s examine three of the fund’s most interesting Q4 trades now:
Electrical car maker Tesla is a controversial stock for analysts and hedge fund managers alike. Clearly, Lykouretzos falls into the bear camp these days as he has decided to wipe out the fund’s 96,700 shares worth a whopping $19.7 million.
Why is the market so divided over the outlook of this stock? The analyst consensus rating for Tesla on TipRanks is hold based on 17 analyst ratings published over the last 3 months. Since the last filing date the shares have gained 17% in value, however as a result of this share increase the average analyst price target of $242 now represents a -2.89% downside from the current share price of $250.
Only recently, on Feb 27, Goldman Sachs’ analyst David Tamberrino sent waves through the market when he downgraded Tesla to sell with a very bearish $185 price target (-26% downside) on near-term challenges to the production of Tesla’s all-electric Model 3 sedan. Shares dropped 5% on the rating.
“While we believe Tesla currently has a lead relative to OEM (original equipment manufacturer) peers with respect to vehicle technology adoption, electric vehicle architecture, and (potentially) battery scale, our concerns are more near-term oriented with respect to operational execution on the Model 3 launch, an unproven solar business, and cash needs,” Goldman Sachs said.
On the other end of the scale, Morgan Stanley’s four-star analyst Adam Jonas reiterated his TSLA buy rating on Feb 27 with a $305 price target (22% upside). Jonas likes Tesla CEO Elon Musk’s latest comments suggesting that the company would consider entering the auto-insurance industry if traditional insurance companies do not adjust their safety policies to match the safety data on Tesla vehicles.
In Q4, Lykouretzos drastically cut the fund’s AAPL holding by 60% to 261,700 shares worth $30.3 million. Since the date of the filing the fund’s remaining holding has benefited from a 21.22% rise in AAPL share prices. The stock has a strong buy rating on TipRanks, however out of the 36 ratings published in the last 3 months, there are 7 hold ratings (no sell ratings). However, there are some fears that share prices could have peaked- prices are currently at record highs of $139.79- which means that the average analyst price target only represents a 3.61% upside from the current share price.
The market is currently holding its breath for September when the iPhone 8 is due to be released. A radical redesign is expected for the phone which will mark the tenth anniversary of the release since the first iPhone model. The latest iPhone rumor involves AR- augmented reality.
“According to some industry sources, the company may have over 1,000 engineers working on a project in Israel that could be related to AR,” four-star UBS analyst Stenen Milunovich says. Augmented reality enhances what we see in the real world by superimposing tech-augmented elements onto our reality- be it sounds, videos or graphics. Milunovich thinks it is possible that Apple could include AR products on the next iPhone, for example in the form of “moderate 3D mapping.”
Bank of America Corp
Lykouretzos initiated a new position for the fund in Bank of America. He didn’t do it halfheartedly either: the fund added 6.8 million BAC shares to its portfolio worth $150.68 million. BAC is now the fund’s biggest holding, making up 7.7% of the fund’s total portfolio holdings, above Wells Fargo, packaging company Sealed Air and Alphabet.
Since the date of the filing the shares have already driven a profit for the fund of 15.74%. Lykouretzos isn’t the only bull in the market: fellow hedge fund manager Steve Mandel also initiated a new BAC position in Q4 worth $478 million.
The second largest holding bank in the US has also attracted praise from hedge fund guru, billionaire Warren Buffett, in his most recent annual letter to shareholders dated February 25 2017. Buffett reminds investors that he owns $5 billion in preferred BAC stock which enables his fund to buy 700 million common BAC shares any time before 2021.
“Many of our investees, including Bank of America, have been repurchasing shares, some quite aggressively. We very much like this behavior because we believe the repurchased shares have in most cases been underpriced… When a company grows and outstanding shares shrink, good things happen for shareholders” Buffett writes.
The analyst consensus rating for BAC is strong buy with no sell ratings published on the stock in the last 3 months. However, the average analyst price target of $25.96 predicts only marginal upside from the current share price of 1.8%.