Lone Pine Capital's flagship hedge fund outperformed the S&P 500 Index by nearly 8 percentage points per year since its inception in 1998. But that's mostly because of its tremendous success in the earlier years of the fund. Nowadays Lone Pine's returns go hand in hand with the market. For example, last year Lone Pine's funds declined about 5%, similar to S&P 500 Index's decline including dividend payments. During the first half of 2019, Lone Pine's Lone Cypress fund returned 19.4% net of fees and expenses. S&P 500 Index returned 18.5% during the same period.
"The combination of historically low interest rates -- $13 trillion of global government debt, over 20% of the total outstanding, yields less than-zero— and historically high levels of technological disruption, has created a stock market with a number. of ‘distinct segments that have widely varying valuations. Any judgment about the overall level of the stock market misses the nuance of these underlying extremes," said Lone Pine Capital's 2019 Q2 investor letter.
The letter explains that Lone Pine goes long the shares of the companies that are disrupting "large swaths of the economy" and goes short the shares of companies that are disrupted. Lone Pine also invests in compounders which are "established businesses with known growth algorithms and long runways for expansion (examples include credit card networks, data analytics companies, internet platforms, and vertical software leaders)". Lone Pine reckons that most of compounders are also disruptors.
When we look at Lone Pine's latest 13F filing, we see that its biggest positions are Adobe Systems Inc (ADBE), Alibaba Group Holdings Ltd (BABA), Iqvia Holdings (IQV), Microsoft Corporation (MSFT), United Health (UNH), and Amazon.com Inc. (AMZN). Basically, Lone Pine is most bullish on healthcare compounders as well as tech disruptors/compounders. You can see Lone Pine's entire portfolio here. Send us an email if you'd like to hear more about Lone Pine's Q2 investor letter.
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These are decent stock picks but we don't think it is a wise decision to pay Lone Pine an arm and a leg for these stock picks. Lone Pine wasn't among the 100 best performing hedge funds in Insider Monkey's database in Q2 (it ranked #161). Our flagship strategy invests in the 10 to 15 "best ideas" of the 100 best performing hedge funds every quarter and returned 34.1% during the first 6 months of this year (read the details here). That means our stock picks outperformed Lone Pine's stock picks by nearly 15 percentage points during the first half. We don't have dozens of analysts working for us trying to identify disruptors or the disrupted. We are the disruptor in the hedge fund industry. Our proprietary models were developed to identify the best and worst stock picks of hedge funds and we don't have to spend an arm and a leg for these stock picks. Our stock picks so far performed far better than hedge fund indices as well as plain vanilla index funds.
Steve Mandel must have seen the writing on the wall as he officially stepped down as portfolio manager at the beginning of this year. Lone Pine has nearly $20 billion under management. We expect either hedge fund fees or their assets under management to go down dramatically over the next decade.