market folly

Today we're detailing the first quarter 2010 investor letter from Ricky Sandler's $5.4 billion hedge fund Eminence Capital. Sandler immediately notes that the recent month has been rough for him as an investor because he seeks quality on the long side and low quality on the short side. As we all know, the market has seen an 'accelerated widening' between large caps and small caps and between low quality and high quality names. While the current market may not be treating them to their liking, Eminence certainly has solid performance figures returning 15.1% CAGR net of fees since inception, blasting the S&P 500 which has returned 1.3% CAGR over the same timeframe.

Here are Eminence Capital's current top 10 holdings:

1. Oracle (ORCL)
2. JP Morgan Chase (JPM)
3. US Bancorp (USB)
4. Thermo Fisher Scientific (TMO)
5. Fiserv (FISV)
6. Ebay (EBAY)
7. Aon (AON)
8. Walmart (WMT)
9. Google (GOOG)
10. Reed Elsevier (LON: REL)

Eminence's current gross exposure is 235% and they are 60% net long. This is interesting because it's different than what we've seen from the majority of hedgies who as of late are only 25% net long, well below the historical average as hedge funds have been selling equities. Even with their high net long exposure compared to other funds, Eminence has still been selling longs and adding/initiating short positions. Their latest position update is slightly different than what we saw when we previously covered Eminence's portfolio.

Sandler's hedge fund started new longs in:
AON
Coca Cola Enterprises
Raytheon
Monsanto
TD Ameritrade
Research in Motion
Avon Products
Dollar Tree Stores
American Eagle Outfitters
Beckman Coulter

They also added to existing long positions in:
JPMorgan Chase
Google
Charles Schwab
Fidelity National Information Services

They reduced their position size in:
Reed Elsevier
CSX
Ross Stores
Carnival
Abbott Labs
Hasbro
Nintendo

And lastly, they sold completely out of:
Nestle
General Mills
Northrup Grumman


Eminence was up 1.7% gross for the first quarter as noted in our hedge fund performances update. Portfolio winners for them this past quarter include: Nintendo (NTDOY), Hasbro (HAS), Carnival (CCL), US Bancorp (USB), and Ross Stores (ROST). They were hurt on the short side by a printing company, an aerospace & defense company, an apparel manufacturer and a media distribution company.

Embedded below is the first quarter investor letter from Ricky Sandler's hedge fund Eminence Capital where you'll find more detailed write-ups on Aon (AON) and Coca Cola Enterprises (CCE):



You can download a .pdf here.

We'll leave you with a quote from Sandler himself who writes, "Experience has taught us that markets like these are not sustainable, but we respect that predicting when it will end or how far it will carry is difficult." For more background on Sandler, head to our previous post on Eminence Capital. Make sure to also check out our ongoing coverage of various hedge fund letters as we posted up Jay Petschek's Corsair Capital earlier along with macro fund Prologue Capital and then David Einhorn's Greenlight Capital letter as well.