AlphaClone

Qualcomm Inc. [QCOM] Down over 14% - Should You Fish or Cut Bait?

Qualcomm Inc [QCOM] is selling off quite a bit after disappointing earnings today – the stock is off over 14% as of market close.  This stock is a hedge fund favorite or a “crowded hedge fund trade” which is what the most popular hedge fund holdings are often called.  There’s been much written about how these stocks tend to underperform and our research seems to support the same conclusion.  Our Hedge Fund Index Top 10 Popularity clone which invests quarterly in the 10 stocks that are the most widely held amongst hedge funds’ twenty largest positions returns an anemic negative 0.6% annualized since 2000 versus a negative 1% annualized for the S&P500TR index – not very exciting. 

So I guess that means you should stay away from QCOM or beat a hasty retreat if you’re currently “involved” with the stock.  Not so fast,  QCOM also happens to be a current holding in AlphaClone’s:

- Tiger Cubs Top 10 Popularity clone (rank #5)
- Value Masters Top 20 Popularity clone (rank #15)

Both the above clones are stellar performers returning 8.8% and 12.9% annualized since 2000 respectively (as of 1/27/2010)!  So is this a buy now or sell now opportunity?   The data above suggests that “crowded hedge fund trades” as a basket should be avoided, but not all crowded trades are bad – it all depends on the crowd!  Stay tuned – we update all clones on the evening of 2/19.

Apple Inc. [AAPL] Most Popular Hedge Fund Technology Holding

Apple Inc. is by far the most popular technology holding amongst AlphaClone's hedge fund universe.  With 35 hedge funds reporting the company as a top 20 holding vs. 25 holders for the next most popular stock, Qualcomm [QCOM].  This morning's iPad launch should make this stock a staple amongst the smart money technology holdings for many quarters to come.  The iPad product "feels" like a new catagory of computer being introduced; desktop, laptop, PDA/Smart Phone and now, the iPad (sorry Kindle!). 

Berkshire Hathaway: Clones vs. Stock [BRK.A, BRK.B]

With its acquisition of Burlington Northern, Berkshire Hathaway will now replace its acquisition target in both the S&P 500 and S&P 100 indexes.   There’s no doubt that had you bought a share of Berkshire on the first day of the year in 2000, you would be a very satisfied investor today.  The company’s class A/B shares returned roughly 100% since then (see graphs).    The S&P 500 had a total return of negative 6%. 

 

Buying the company’s shares means you are exposing yourself to two things; a) the company’s operating businesses (historically primarily insurance) and b) the public market investment prowess of  Warren Buffett and Charles Munger in deploying the insurance company’s “float” (i.e. the cumulative net between insurance premiums collected and insurance claims paid less a reserve).   But what if you didn’t want exposure to the company’s operating businesses?  What if instead, you simply wanted exposure to the company’s public equity investment portfolio (i.e. excluding debt and derivatives)?   Well of course that’s exactly what you get when you invest in AlphaClone’s Berkshire clones. 

We thought we’d take a look at how the Berkshire’s clone portfolios faired against the performance of the company’s shares over the past ten years.  The results are interesting – both the Berkshire Top 10 Holdings clone and the Berkshire Ten Best Ideas clones outperformed the company’s stock:

• The Top 10 Holdings clone, which simply holds the company’s ten largest equity positions each quarter, equal weighted, long only, returned 118.5% at 15.5% annualized volatility (slightly lower than the market)

• The 10 Best Ideas clone returned 171.8% at 18% annualized volatility (slightly higher than the market). You can find a description of the Best Ideas clone strategy in our glossary.

Financial Stocks Power Second Curve Capital's Clones to Early 2010 Lead

Second Curve Capital's clones took the early lead in 2010 powered by financial stocks  Primus Guarantee  [PRS], Synovus Financial [SNV] and Boston Private Financial Holdings [BPFH].  The fund's Top 3 Holdings clone which is free to access on AlphaClone is up 27.6% so far this year vs. 3.2% of the S&P500TR index (as of 1/19/2010).