market folly

We're continuing coverage of the recent hedge fund panels that took place at the Morgan Stanley Breakers Conference on January 25th & 26th, 2010. Earlier today, there was an introductory post that outlined key takeaways from the event. Next, let's look at the separate hedge fund manager panels and start with the long/short equity hedge fund panel featuring Bridger Management's Roberto Mignone, Carlson Capital's Clint Carlson, Glenview Capital's Larry Robbins, GLG Partners' Pierre Lagrange, and Maverick Capital's Lee Ainslie.

The Case for Global Equities in 2010: What Should Investors Expect?


- Lee Ainslie (Maverick Capital): Ainslie focused on how in 2008 and 2009, there was little differentiation between stocks as 90% of them were down in 2008 and 90% of them were up big in 2009. He notes that risk premiums are now back up to 2007 levels and that fundamentals aren't really responsible for the massive price gains and that needs to change. His best idea going forward is large cap technology companies.

This sentiment falls directly in-line with when we looked at Maverick's portfolio and saw they were betting big on technology stocks. Ainslie's hedge fund is one of the many funds that comprises the Tiger Cub Portfolio created with Alphaclone where you can replicate the positions and enjoy 15.5% annualized returns since 2000. To learn more about Maverick, check out our profile/biography on Lee Ainslie & Maverick.


- Roberto Mignone (Bridger Management): Mignone's best stock idea for 2010 was healthcare across the board as he says there is a huge margin of safety. He said you don't even need individual names, just an ETF. We of course will examine his holdings when the new 13F's are released soon in order to single out some names. Mignone also noted that there are a ton of mega cap multinational companies trading at low valuations. Many of them have massive cash flows and offer an attractive risk adjusted return. This is not the first hedge fund manager we've seen talk about this. Bill Ackman recently started a large Kraft (KFT) position and is one of the many examples.

Bridger Management now runs $2.4 billion and is closed to new investors, except for replacing redemptions. They don't want to increase their size as it then becomes nearly impossible to have the necessary short portfolio. Not to mention, Mignone likes to focus on investing rather than running a big organization. They have nine analysts (including Mignone) and have always had a large focus on healthcare. We recently covered Bridger's new position and previously looked at their portfolio as well.

Mignone is known for his sleuthing skills in identifying short positions. However, this worked against him in 2009 due to the massive rally. At the same time, he noted that shorting has changed due to an increase in news flow and transparency, and a shrinkage in the pool of capital to short.


- Larry Robbins (Glenview Capital): Like Mignone & Bridger, Robbins' Glenview has large healthcare exposure. His best idea was Express Scripts (ESRX). He notes that contrary to popular belief, this company won't be affected by healthcare reform. He thinks that ESRX will benefit from generic conversion and thinks they will see 30% earnings growth. With earnings of $7.10 to $7.25 in 2011 the company trades at 12x 2011 estimates and 16x 2010 estimates. He notes this company has a bright future with solid growth and high visibility. For other hedge funds that own this name, we saw that David Stemerman's Conatus Capital had a sizable ESRX position when we looked at their portfolio.

Robbins also thinks that 2010 will be akin to 2004 where stockpicking will return so managers can generate alpha rather than relying on beta like they did in 2009. We haven't covered Glenview much in the past and we did note that back in 2008 they were amongst the top 10 asset losers, but they have since bounced back.


- Clint Carlson (Carlson Capital): Carlson believes that the expectations of an interest rate increase will hang over the markets in 2010. He feels that event-driven strategies in the hedge fund arena will be very successful as M&A will pick up and he thinks the potential for takeovers is not priced into many stocks. We haven't covered Carlson before on the site and note that they run a series of hedge funds in Dallas, TX with over 130 employees focusing on relative value arbitrage, risk arbitrage, credit, and long/short equity.


- Pierre Lagrange (GLG Partners): Lagrange's best idea was essentially London pub companies. He notes these are crowded shorts and yet these companies have stable cash flow and are an enterprise value play. Punch Taverns (LON: PUB) fits the bill here and this is interesting as saw David Einhorn's Greenlight Capital selling shares of Punch Taverns back in November.


That wraps up coverage of the case for global equities panel. Head to the overview of the hedge fund panel and check back tomorrow for summaries of the credit panel, the 2010 investment landscape panel, and more.