Top Buys From The Best Money Managers (Q4 2021)

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At the end of each quarter, hedge fund managers who have more than $100 million in assets under management have to reveal their portfolio positions within 45 days as part of their 13F filing. The deadline for the fourth quarter of 2021 reports was February 15.

The vast majority of these funds charge both a management fee (1% to 4% annually, 2% being standard) and a performance fee (typically 20% of the fund’s profits every year). However, the relevance of the two and 20 structure has been waning. Some of these hedge funds have the track record to justify high fees, but it makes little sense for the masses when you can get exposure to excellent rule-based and thematic ETFs almost for free.

While I would personally refrain from investing my own capital in any of these funds given their prohibitive cost structure, I believe 13F filings can be a valuable source of new ideas and frameworks for my own portfolio.

After all, several of these funds have a long-term view and hold their positions for much more than a quarter. As a result, you can take the best out of your favorite portfolio managers and build a portfolio lagging behind their trading strategy only by a few weeks. For free.

Some investors will point out that knowing what the best money managers invested in a few weeks ago is useless and outdated. I couldn’t disagree more. Most of these funds invest with a multi-year time horizon. They spend hours of research and due diligence to pick only a few outstanding businesses that can weather the test of time. This information is precious for anybody with an investment horizon longer than a few months.

Looking at what finds have recently bought is even more relevant today, with the Nasdaq in correction territory, more than 10% down since the beginning of the year. Most stocks these funds held at the end of December are trading at a lower price today.

All that being said, the number of funds and data available can be overwhelming. So how do you choose which funds to follow and which ones to ignore? How do you separate the wheat from the chaff?

Just like previous quarters, I’ve used a list of carefully curated hedge funds to identify some trends emerging from what they are buying and holding at the very top of their portfolios.

Let’s dig into the details.

Methodology for selecting the top hedge funds

I selected a list of 20 hedge funds among the best-performing according to TipRanks. Their methodology to determine the best hedge funds is based on the alpha generated compared to the S&P 500 (SPY):

TipRanks uses [13F] information to determine how each hedge fund performed in comparison to other hedge funds and to the S&P 500. Top hedge funds are determined by those that generate the highest return based on their stock portfolio.

Using track record and performance is the most objective way to select the best funds. If I want to learn something, I would rather learn from the very best performers.

A case could be made that you specifically want to avoid the portfolio allocation of the best-performing funds because of an eventual reversion to the mean. Such reasoning would have some merit if the goal here were to pick a hedge fund to invest my money in.

Instead, today we’re trying to find common themes in individual stocks that several top-performing money managers have identified. In this context, I believe that the past track record is an excellent way to curate the list of money managers to follow closely.

I also selected some recurring names shared by reputable investors on my Twitter feed. I’m sure many readers will be familiar with several of these names since most of them have a spectacular track record over the years.

Here are the hedge funds I ended up with:

Night Owl Capital Management, LLC
AKRE Capital Management LLC
Lone Pine Capital LLC
Coatue Management LLC
Altimeter Capital Management, LP
Sands Capital Management, LLC
Route One Investment Company, L.P.
Kylin Management LLC
Tiger Global Management LLC
Eagle Capital Management LLC
Dorsey Asset Management, LLC
Abdiel Capital Advisors, LP
Light Street Capital Management, LLC
Foxhaven Asset Management, LP
Center Lake Capital Management, LLC
Baillie Gifford & Company
Fundsmith LLP
Whale Rock Capital Management LLC
MayTech Global Investments, LLC
Hunt Lane Capital LP

I have kept this list of funds unchanged since Q1 2020 and may revisit it at some point.

What top hedge funds were holding at the end of December 2021

Before we look at what the top hedge funds were buying in Q4, let’s focus first on what was sitting at the very top of their portfolios at the end of December 2021. Here is a summary of the top 5 holdings for each fund:

Summary of the top 5 holdings for each fund

Top 5 Holdings – Q4 2021 – Chart by App Economy Insights (Whalewisdom.com)

Stocks in the chart: ACWI, ADBE, AMT, AMZN, AON, APPN, BBWI, BEKE, BILI, BILL, CFLT, CPNG, CRM, CRWD, DIDI, DIS, EL, ESTC, FB, FND, FSLY, GLBE, GOOG, GRAB, HLF, HLT, IDXX, ILMN, INTU, JD, MA, MCO, MELI, MRNA, MSFT, NFLX, NOW, NU, NVDA, ORLY, POST, PYPL, RIVN, RNG, SCHW, SE, SHOP, SMAR, SNAP, SNOW, SPY, OTCPK:TCEHY, TCOM, TEAM, TSLA, UBER, UNH, V, WDAY, WIX, OTCPK:WXXWY, ZEN.

If we rank companies by the number of times they appear in the top five holdings of the selected hedge funds and only keep the ones that appear at least twice, the following list emerges.

Top 5 Holdings - Q4 2021 - Recurring Names

Top 5 Holdings – Q4 2021 – Recurring Names (Chart by App Economy Insights)

Company # of times in top 5 holdings % of funds
Amazon (AMZN) 9 45%
Microsoft (MSFT) 6 30%
Meta Platforms (FB) 5 25%
Shopify (SHOP) 4 20%
Alphabet (GOOG) 4 20%
Sea Limited (SE) 3 15%
Tesla (TSLA) 3 15%
Visa (V) 3 15%
Mastercard (MA) 2 10%
PayPal (PYPL) 2 10%
Netflix (NFLX) 2 10%
Disney (DIS) 2 10%
JD.com (JD) 2 10%
Moderna (MRNA) 2 10%
Snowflake (SNOW) 2 10%
ServiceNow (NOW) 2 10%
Zendesk (ZEN) 2 10%

If you’ve been investing in growth companies over the past decade, this list should be familiar. The very best money managers naturally have some of the best-performing stocks at the top of their portfolios.

Three categories continue to be well represented:

  • US Mega-caps tech (AMZN, MSFT, FB, GOOG, TSLA).
  • Digital payments (V, MA, PYPL).
  • Global e-commerce (SHOP, SE, JD).
  • SaaS/Cloud computing (NOW, SNOW, ZEN)

Just like watching athletes on TV, everything looks easy when executed by the best in the world. Many of these top holdings might seem like an obvious choice today. Hindsight is 20/20.

Five companies are new on this list compared to my Q3 2021 review:

  • Netflix: Top 5 holding at Sands and Eagle.
  • Mastercard: Top 5 holding at Akre and Lone Pine.
  • Snowflake: Top 5 holding at Altimeter and Tiger Global.
  • ServiceNow: Top 5 holding at Night Owl and Center Lake.
  • Zendesk: Top 5 holding at Light Street and Hunt Lane.

As previously explained, I believe investors should look at this list and ask themselves how much exposure they have to these companies in their own portfolio. If you have been investing for many years, there’s a good chance that several of these stocks are already cornerstones of your portfolio. And if not, it’s not too late to re-assess your portfolio allocation.

Five of them are part of the Starter Stocks of the App Economy Portfolio. I consider them cornerstone positions. Why? Because they represent a list that could constitute a well-rounded portfolio on their own. They are already big and profitable (or cash flow positive), are global businesses, and have a proven track record.

These businesses are disrupting enterprise software, entertainment, e-commerce, digital payments, and more. Yet, if you’re new to investing, or have decided to ignore the bells and whistles of the market leaders and secular growers of our time, simply know that the top money managers in the world hold them at the very top of their portfolios.

I’m long already half of the 17 companies from the top holdings chart above as part of the App Economy Portfolio. It’s not surprising since the portfolio is well-positioned to embrace a world disrupted by a global pandemic and embracing a digital transformation.

What top hedge funds have been buying in Q4 2021

Let’s focus on what the biggest buys were for these funds during Q4. The chart below breaks down only the top five buys for the period.

Top 5 Buys - Q4 2021 - Chart by App Economy Insights

Top 5 Buys – Q4 2021 – Chart by App Economy Insights (Whalewisdom.com)

Stocks in the chart: ACWI, AMD, AMZN, ANTM, BAM, BEKE, BILI, CFLT, CHD, CPNG, CRCT, CSGP, CVNA, DDOG, DIDI, DUOL, EL, ESTC, EXFY, FB, FND, GDS, GLBE, GOOG, GRAB, GTLB, HLT, IAC, IWD, JD, KKR, LRCX, MA, MDB, MELI, MKC, MLM, MRVL, NET, NOW, NU, NYT, OKTA, ORLY, OSH, PANW, PFE, POSH, RBLX, RIVN, RNG, ROP, SCHW, SE, SHOP, SMAR, SNOW, SPY, OTCPK:TCEHY, TCOM, TSLA, TTD, TTWO, TXG, V, VMGAU, VOO, VRSK, WDAY, WIX, OTCPK:WXXWY, XPEV, ZEN.

Once again, let’s look at the stocks that appear multiple times in the top five buys of the selected funds:

Top 5 Buys - Q4 2021 - Recurring Names

Top 5 Buys – Q4 2021 – Recurring Names (Chart by App Economy Insights)

Company #of times in top 5 buys % of funds
Alphabet (GOOG) 6 30%
Amazon (AMZN) 5 25%
Visa (V) 4 20%
Shopify (SHOP) 3 15%
Nu Holdings (NU) 3 15%
Microsoft (MSFT) 3 15%
Snowflake (SNOW) 2 10%
Tesla (TSLA) 2 10%
MercadoLibre (MELI) 2 10%
Smartsheet (SMAR) 2 10%
Carvana (CVNA) 2 10%

The following recurring themes emerge:

  • US Mega-caps Tech (GOOG, AMZN, MSFT).
  • E-commerce / Digital payments (SHOP, MELI, V).
  • SaaS/Cloud computing (SNOW, SMAR).

Out of these 11 top buys in Q4, four were already recurring top buys in Q3 2021: GOOG, AMZN, MSFT, and MELI.

This list is particularly relevant today because all of these stocks are trading lower today than they did at the end of 2021 (with the exception of Visa, marginally higher). The chart below is their returns YTD.

Returns YTD chart of recurring themes
Data by YCharts

Bottom Line

Hedge funds are prohibitively expensive for the masses. But their top holdings and recent buys are for everyone to see four times a year, with only a few weeks’ delay.

By multiplying your sources and taking inspiration from some of the best and most respected money managers in the world, you can build an outstanding portfolio for yourself, without the need to sacrifice 20% of your own alpha in performance fees, let alone 2% of your precious savings given away in the form of management fees.

  • Do you own some of these top holdings in your portfolio?
  • Did any of these new top buys surprise you?
  • Were there any companies that you would have predicted to be on the list that did not make it to the top buys of Q4?

Let me know in the comments!

https://seekingalpha.com/article/4487773-top-buys-from-the-best-money-managers-q4-2021

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