Nick Niell of the London-based Arrowgrass Capital Fund has made some unexpected moves on three key stocks in Q1, namely Tesla Inc (NASDAQ:TSLA), Facebook Inc (NASDAQ:FB) and Amazon.com, Inc (NASDAQ:AMZN). Arrowgrass, which has a portfolio value of over $9 billion, has so far seen a gain this quarter of 1.10%. The fund, which specializes in distressed assets, equity and fixed income special situations, and merger arbitrage, was spun out from Deutsche Bank by ex-Deutsche Bank bond traders back during the financial crisis of 2008. At the time it was called a “super start up.”
With a tech focus and over 100 employees, Arrowgrass has an annualized return of 8.2% since inception. It explains its investment process as “combining top-down and bottom-up analysis to identify relative value and event driven opportunities… supported by comprehensive risk management.” Niell, the founder CIO, was a managing director at Deutsche Bank for nine years. He has a very impressive background as he was the youngest member of the Deutsche Bank Global Equities Management Committee and the youngest member of the board of Deutsche Morgan Grenfell in the UK.
So how did the fund play these key stocks in Q1? We took a look at the 13F forms filed by the fund with the SEC to find out:
In Q1 Niell ramped up the fund’s Tesla holding by a whopping 900%. The holding of 80,000 shares is now work over $22 million.
Shares in the controversial automaker spiked at the end of last week on the news that Tesla is considering opening a new factory in China- which would help the company realize its manufacturing goal of 500,000 cars per year. China is the biggest electrical vehicle (EV) market in the world. Electrical vehicles have seen a rapid uptake in a country which currently has a massive air pollution problem.
After the market close on Friday, Tesla announced that is increasing its credit line by $625 million with an optional extra $175 million. The asset-backed line is now worth a total of $1.825 billion with potential total revolving commitments of up to $2 billion. It is unlikely that the market will react too drastically given that Tesla had already announced that it would require extra funds in the run up to the Model 3 launch. However, it will be interested to see whether the market approves of the sums involved: so far in pre-market trading shares are down by close to 2%.
In contrast to Facebook’s generally positive hedge fund sentiment, Niell turned sour on the stock. He cut the holding by -41% and is now left with 227,602 shares valued at $32.3 million.
Clearly Facebook also feel that something needs shaking up as it has just released a new mission statement. FB now says it wants to “give people the power to build community and bring the world closer together” and it plans to achieve this through a focus on Facebook Groups. Facebook is currently holding its inaugural Communities Summit where it has showed off a range of new group-admin tools to boost its current group offering. The upcoming tools include insights into the group, request filters, post scheduling (which Twitter has had for a long time) as well as the potential possibility of linking different groups together.
Perhaps this new goal will help Facebook improve its current perception which has been tainted recently through the leak of its lax policy guidelines and the ongoing challenge of monitoring Facebook live videos for inappropriate content including murder and suicide.
Niell displayed optimism towards e-commerce stock Amazon. He increased the fund’s Amazon holding by 72%. The fund now has 25,829 Amazon shares valued at close to $23 million.
And it seemed like Niell has made the right move- given the recent news of Amazon’s $13.7 billion Whole Food Markets (WFM) buyout which was very well received by the market. Now CEO Jeff Bezos has outlined further big plans for the company. He tweeted on June 25 that he had had a “terrific” meeting with Indian Prime Minister Narendra Modi during the Prime Minister’s first visit to President Trump.
Bezos said he is “excited to keep investing and growing” in India. This is not so surprising- competitors Alibaba and SoftBank are already making serious investments in the country (see $2billion recent investment in Indian mobile payment company Paytm). India is a very valuable market given its young population of over 1.3 billion which breaks down into at least 450 million Indians who are active online. So far in India Amazon has its Prime subscription service and video offering, and we can expect its e-commerce offering to grow rapidly with more warehouses and products. In 2014 and 2016 Bezos pledged to invest a combined total of $5 billion in India.