What investor wouldn’t want to place money with a hedge fund like Whale Rock Capital? The fund’s owner and portfolio manager Alexander Sacerdote is one of the best stock pickers on the planet. Whale Rock’s long-only portfolio has averaged nearly a 28% annualized return over the last decade. But here’s the problem investing with Whale Rock: Even if you have a million bucks, the fund has been closed to new investors since late 2017. This isn’t unusual. Fact is, most of the best performing hedge funds are closed to new money. Nevertheless, there’s a way to “look over the shoulder” of the most profitable hedge fund managers as they buy and sell. By analyzing the quarterly 13F filings of hedge funds, one can create and hold portfolios of their top ideas. Below is a list of the best large hedge funds to clone, based on the last five year’s performance.
We’ve discussed how small hedge funds generally outperform large head funds. There tends to be an inverse relationship between assets under management and the returns of hedge funds.
But the top performing funds on the list below are not tiny. All have 13F (long stock portfolio) values greater than $4B. So despite AUM that’s grown significantly in recent years, these funds have continued to outperform.
The best large hedge funds to clone. Based on equal-weighted portfolios of a fund’s top 20 holdings, rebalanced quarterly as new 13Fs are filed.
| Fund | Holdings | 13F Mkt Value | Turnover | % in Top 10 | QoQ Perf | 1 Yr Perf Eq Wt | 3 Yr Per Annualized | 5 Yr Perf Anul | Avg qtrs top 10 |
| WHALE ROCK CAPITAL MANAGEMENT | 48 | 15,109,083,000 | 47.92% | 40.08% | 7.28% | 82.73% | 38.45% | 36.97% | 4.4 |
| SCGE MANAGEMENT | 31 | 6,419,015,000 | 29.03% | 70.57% | 10.14% | 96.37% | 40.20% | 34.11% | 8.1 |
| DRAGONEER INVESTMENT GROUP | 33 | 4,451,516,000 | 48.48% | 79.08% | 9.13% | 82.84% | 29.55% | 32.00% | 5.2 |
| COATUE MANAGEMENT | 73 | 19,053,389,000 | 86.30% | 51.01% | 14.77% | 86.49% | 31.78% | 27.46% | 3.1 |
| TIGER GLOBAL MANAGEMENT | 90 | 35,532,151,000 | 25.56% | 54.65% | 12.04% | 80.54% | 31.58% | 26.63% | 9.9 |
| ALKEON CAPITAL MANAGEMENT | 145 | 54,018,384,000 | 28.97% | 63.09% | 5.80% | 52.56% | 24.95% | 25.35% | 4 |
| HILLHOUSE CAPITAL ADVISORS | 89 | 13,201,516,000 | 28.09% | 73.10% | 21.79% | 67.55% | 19.25% | 25.31% | 7.1 |
| VISTA EQUITY PARTNERS MANAGEMENT | 38 | 5,182,130,000 | 36.84% | 92.74% | 12.27% | 52.16% | 27.16% | 24.73% | 0.9 |
| NIKKO ASSET MANAGEMENT AMERICAS | 211 | 11,284,063,000 | 21.33% | 36.50% | 13.51% | 98.40% | 33.74% | 24.70% | 4.5 |
| ALTIMETER CAPITAL MANAGEMENT | 27 | 5,922,401,000 | 14.81% | 85.69% | 15.42% | 43.69% | 29.78% | 24.65% | 13.7 |
Whale Rock’s Alex Sacerdote is known for his “S-curve” analysis.
As I’ve written previously, Whale Rock’s Alex Sacerdote uses “S-curve” analysis to inform his stock picks. Sacerdote looks to identify an emerging technology and determine where the technology is on its S-curve. From a Nov. 2018 interview with Graham and Doddsville:
“All technology adoption starts very slowly. It can be held back for a variety of reasons: high price, complex products, lack of an ecosystem. At some point, these barriers are removed, and the technology moves on the S- curve from the early adopter phase into the majority phase. At that point a massive wave of demand kicks in, and you can see three to four years of incredible unit growth. Everybody says tech is so unpredictable, but if you understand the way S-curves work, it actually can be quite predictable during certain time periods. You are able to understand how fast units might grow over a three to five year period. In analyzing the S-curve, it’s important to assess both the slope of the curve as well as the height of the curve.”
To understand how long a fund typically holds positions, note the average number of quarters a stock stays in a fund’s top ten 13F holdings.
One of the criticisms of investing based on quarterly 13F reports (which are filed within 45 days after the end of the quarter), is that they can contain stale information. However, this is less of a concern for longer-term investors like Sacerdote. Note that when a stock enters Whale Rock’s top ten holdings, it stays there for 4.4 quarters on average. Whale Rock’s top 2 holdings, Amazon (AMZN) and Shopify (SHOP) have been in the portfolio since 2015.
SCGE management has been one of the best large hedge funds to clone. The Menlo Park-based fund, with $6.4B in 13F assets, has posted five year performance of 34.11%, through the end of Q3. The fund’s Managing Partner is Jeffrey Wang. Shopify and Twilio Inc. (TWLO) were the fund’s top two holdings in Q3’s 13F. SCGE has a long-term technology focus — with a stock typically spending 9.9 quarters in the fund’s portfolio.
Dragoneer Investment Group is run by Marc Stad, one of the most successful tech investors in Silicon Valley. Stad, who founded Dragoneer in 2012, has been a private investor in stocks that became big winners in the public market. Alibaba, DoorDash (DASH), Spotify (SPOT), Snowflake, DataDog and Slack Technology (WORK) have gone public with Dragoneer’s support. But while Stad’s private investments have been stellar, following Dragoneer’s public moves via 13F filings has also paid off handsomely. An equal-weight portfolio of the fund’s top 20 holdings has returned 32% annually over the last five years.
Dragoneer Investment’s 13F portfolio as of Q3 close. Top 10 positions.
| Stock | Market Value | % of | Rank | Change in | % Change | % Ownership | Qtr 1st | Estimated | Recent Price | Source | Source Date | Date Reported | |
| Shares Held | Portfolio | Shares | Owned | Avg Price Paid | |||||||||
| SNOW | 3,883,970 | $974,876,000 | 21.9 | 1 | 3,883,970 | New | 1.37% | Q3 2020 | 251 | 281.4 | 13F | 9/30/20 | 11/16/20 |
| UBER | 17,946,310 | $654,681,000 | 14.71 | 2 | 2,030,122 | -10% | 1.02% | Q2 2019 | 46.26 | 51 | 13F | 9/30/20 | 11/16/20 |
| DDOG | 4,469,887 | $456,644,000 | 10.26 | 3 | 450,724 | -9% | 1.47% | Q3 2019 | 33.91 | 98.44 | 13F | 9/30/20 | 11/16/20 |
| DT | 7,263,555 | $297,951,000 | 6.69 | 4 | 702,836 | 10% | 2.57% | Q3 2019 | 21.89 | 43.27 | 13F | 9/30/20 | 11/16/20 |
| SQ | 1,777,689 | $288,963,000 | 6.49 | 5 | No Change | 0% | 0.39% | Q1 2020 | 56.12 | 217.64 | 13F | 9/30/20 | 11/16/20 |
| DCT | 4,440,120 | $201,715,000 | 4.53 | 6 | 4,440,120 | New | N/A | Q3 2020 | 45.43 | 43.3 | 13F | 9/30/20 | 11/16/20 |
| TWLO | 752,883 | $186,030,000 | 4.18 | 7 | 413,146 | -35% | 0.47% | Q3 2017 | 63.16 | 338.5 | 13F | 9/30/20 | 11/16/20 |
| BABA | 606,716 | $178,362,000 | 4.01 | 8 | 92,871 | -13% | 0.02% | Q4 2014 | 142.57 | 232.73 | 13F | 9/30/20 | 11/16/20 |
| ZI | 3,366,769 | $144,737,000 | 3.25 | 9 | 250,000 | 8% | 0.86% | Q2 2020 | 50.43 | 48.23 | 13F | 9/30/20 | 11/16/20 |
| CARG | 6,311,121 | $136,510,000 | 3.07 | 10 | 619,954 | 10% | 5.57% | Q1 2020 | 21.29 | 31.73 | 13F | 9/30/20 | 11/16/20 |
Vista Equity Partner’s 13F market value has grown from 2.9B at the end of 2018 to $11.2B as of Q3 2020.
Coatue Management and Tiger Global, are two of the so-called “Tiger Cubs” — funds whose managers got their start with legendary hedge fund pioneer Julian Robertson. Managed by Philippe Laffont and Chase Coleman, the two funds have been great hedge funds to clone, returning 31.78% and 31.58% respectively over the last three years.
Hong Kong-based Hillhouse Capital Management is a private equity firm founded in 2005 by Zhang Lei. The firm focuses on buyouts and growth investments in the Asia region as well as selective investments in North America and Europe. Hillhouse Capital Advisors is the arm of the firm registered with the SEC that generally focuses on publicly-listed U.S. investments. Holding an equal-weight portfolio of HCA’s long holdings, rebalanced quarterly, would have produced an average return of 25.31% over the last five years. As of Q3’s close, China Biologic Products (CBPO) was the fund’s top holding at 18.63% of the portfolio.
Vista Equity Partners is another San Francisco-based fund focused on private and public investments that’s been on a roll recently.
The firm’s founder and principal owner is Robert Smith, reportedly the wealthiest African American in the U.S. with around $5 billion net worth — thanks to the success of Vista Equity.
Vista Equity is one of the best hedge funds to clone. Principal owner Robert Smith is the wealthiest African American in the U.S.
The fund’s 13F portfolio has grown from 2.9B at the end of 2018 to $11.2B in with $5.2B in assets as of Q3, has returned 24.73% annually over the last five years. At Q3’s close, the fund’s top holding was a new position, Jamf Holding Corp. (JAMF), which represented 61.59% of the fund’s portfolio.
Nikko Asset Management Americas, #9 on our list of top large hedge funds to clone, is the American subsidiary of Tokyo-based Nikko Asset Management Group. Nikko AM’s 13F market value has grown from $2.9B at 2018’s close to $11.3B as of Q3 2020. The fund’s one year return of 98.4%, powered by gains in portfolio holdings like Square Inc. (SQ), Tesla (TSLA) and Roku (ROKU), was a big driver of AUM growth.
Rounding out the top ten of the best large hedge funds to clone is Brad Gerstner’s Altimeter Capital. Gerstner’s firm is a VC force, but his stock picking in the public market realm has been equally impressive. Altimeter’s 13F portfolio has averaged a 29.78% return over the last three years. The hedge fund’s largest position was Uber Tech. (UBER), representing 19.01% of its 13F portfolio, at Q3’s close.
Contact Mark about investing based on SEC filings and smart money disclosures.
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