Juanmonino
At the end of each quarter, hedge fund managers with more than $100 million in assets under management must reveal their portfolio positions within 45 days as part of their 13F filing. The deadline for the second quarter of 2022 reports was August 15.
The vast majority of these funds charge a management fee (1% to 4% annually, 2% being standard) and a performance fee (typically 20% of the fund’s profits annually). However, the relevance of the two and 20 structure has been waning. Some 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 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 portfolio.
After all, several of these funds have a long-term view. They hold some of 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Some investors will point out that knowing what the best money managers bought a few weeks ago is useless and outdated.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 funds have recently bought is even more relevant this quarter. June was a temporary bottom in the market, so we got to see for which stocks these funds were doubling down.
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?
Like in previous quarters, I’ve used a list of carefully curated hedge funds to identify trends emerging from what they buy and hold at the very top of their portfolios.
Let’s dig into the details.
Methodology for selecting the top hedge funds
Early 2020, I selected a list of 20 hedge funds among the best-performing according to TipRanks. Their methodology to determine the best hedge funds was 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 best performers.
One could argue that we want to avoid the portfolio allocation of the best-performing funds because of an eventual mean reversion. Such reasoning would have merit if the goal here was 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 from reputable investors on my Twitter feed. I’m sure many readers will be familiar with several of these names since many have a spectacular track record.
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. |
| Appaloosa, LP |
| 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 |
What top hedge funds were holding at the end of June 2022
Let’s focus first on what was sitting at the top of their portfolios at the end of June 2022. Here is a summary of the top 5 holdings for each fund:
Top 5 Holdings Q2 2022 (13F filings, Chart by App Economy Insights)
Stocks in the chart:
AAPL, ACEL, AMT, AMZN, AON, APPN, BILL, BRBR, CEG, CFLT, CRWD, DDOG, DIS, DXCM, EL, EXFY, FND, FORG, OTC:GBLE, GOOG, HLF, HLT, IDXX, ILMN, INTU, JD, M, MA, MAR, MCO, MELI, META, MKC, MPWR, MRNA, MSFT, NOW, NU, ORLY, PM, POST, RIVN, ROKU, SCHW, SE, SHOP, SMAR, SNOW, SPLK, SQ, TMUS, TSLA, TSM, UBER, UNH, V, WDAY, WIX, 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.
Repeat Top Holdings Q2 2022 (App Economy Insights)
| Company | # of times in top 5 holdings | % of funds |
| Amazon (AMZN) | 11 | 55% |
| Microsoft (MSFT) | 8 | 40% |
| Alphabet (GOOG) | 5 | 25% |
| Meta Platforms (FB) | 5 | 25% |
| Visa (V) | 4 | 20% |
| Mastercard (MA) | 4 | 20% |
| Intuit (INTU) | 3 | 15% |
| Tesla (TSLA) | 2 | 10% |
| Sea Limited (SE) | 2 | 10% |
| JD.com (JD) | 2 | 10% |
| Workday (WDAY) | 2 | 10% |
| Zendesk (ZEN) | 2 | 10% |
| Smartsheet (SMAR) | 2 | 10% |
| UnitedHealth (UNH) | 2 | 10% |
| Moderna (MRNA) | 2 | 10% |
This list should be familiar if you’ve been investing in growth companies over the past decade. The best money managers naturally have some of the best-performing stocks at the top of their portfolios.
Five categories dominate:
- Hyperscalers (AMZN, GOOG, MSFT).
- Digital payments (MA, V).
- Global apps (FB, SE).
- Healthcare (UNH, MRNA)
- SaaS/Cloud (INTU, WDAY, ZEN, SMAR).
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.
Six companies are new on this list compared to my Q1 2022 review:
- Intuit (INTU): Top 5 holding at Foxhaven, Whale Rock, and Center Lake.
- JD.com (JD): Top 5 holding at Tiger Global and Coatue.
- UnitedHealth (UNH): Top 5 holding at Route One and Eagle.
- Workday (WDAY): Top 5 holding at Lone Pine and Hunt Lane.
- Smartsheet (SMAR): Top 5 holding at Dorsey and Hunt Lane.
- Zendesk (ZEN): Top 5 holding at Light Street and Hunt Lane.
A few notable companies previously in the top five holdings of at least two funds did not have a repeat performance this quarter. The list includes Shopify (SHOP), Netflix (NFLX), Disney (DIS), Block (SQ), ServiceNow (NOW), Bill.com (BILL), and CrowdStrike (CRWD).
As previously explained, I believe investors should look at this list and ask themselves how much exposure they have to these companies in their portfolio. There’s a good chance several of these stocks are already cornerstones of your portfolio. And if not, it’s not too late to re-assess your portfolio allocation.
Four 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 disrupt 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, know that the top money managers in the world hold them at the very top of their portfolios.
I’m already an investor in several of the 15 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 the world’s digital transformation.
What top hedge funds have been buying in Q2 2022
Let’s focus on the most significant buys for these funds during Q2. The chart below breaks down only the top five buys for the period.
Top 5 Buys Q2 2022 (13F filings, Chart by App Economy Insights)
Stocks in the chart:
ABNB, ADP, AER, AMZN, APPN, BABA, BAMR, BEKE, BF.B, BILL, BKNG, BNTX, BZ, CEG, CFLT, COP, CRM, DBRG, DDOG, EL, ENPH, EPAM, ET, EVBG, EW, GLBE, GOOG, GWRE, INTU, IOT, JD, KMX, KSS, LCID, LPLA, LRCX, LYB, MA, META, MSFT, NFLX, NIO, NOW, NVDA, OPEN, PANW, PDD, PM, POSH, PXD, RH, ROKU, RPRX, S, SCHW, SCI, SEMR, SHOP, SHW, SMAR, SNOW, SPLK, TDG, TMO, TMUS, TOST, TWLO, UPWK, V, WAT, WDAY, WFC, WIX, ZEN.
Once again, let’s look at the stocks that appear multiple times in the top five buys of the selected funds:
Repeat Top 5 Buys Q2 2022 (App Economy Insights)
| Company | #of times in top 5 buys | % of funds |
| Alphabet (GOOG) | 6 | 30% |
| Mastercard (MA) | 3 | 15% |
| Meta Platforms (FB) | 3 | 15% |
| Salesforce (CRM) | 3 | 15% |
| Intuit (INTU) | 3 | 15% |
| Amazon (AMZN) | 2 | 10% |
| Visa (V) | 2 | 10% |
| Splunk (SPLK) | 2 | 10% |
| Zendesk (ZEN) | 2 | 10% |
| T-Mobile US (TMUS) | 2 | 10% |
The following recurring themes emerge:
- Hyperscalers (AMZN, GOOG).
- Digital payments (MA, V).
- Global apps (FB).
- SaaS/Cloud (CRM, INTU, SPLK, ZEN).
Out of these 10 top buys in Q2, four were already recurring top buys in Q1 2022: AMZN, GOOG, MA, and V.
The repeat presence of Salesforce and Intuit isn’t entirely surprising. These two companies have been resilient during the Great Recession and even managed to expand their operating margin at the time (as illustrated in the chart below). It makes them great fits for a challenging macro environment.
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.
You can build an outstanding portfolio by multiplying your sources and taking inspiration from some of the world’s best and most respected money managers. Moreover, you don’t have to sacrifice 20% of your 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 you would have predicted to be on the list that did not make it to the top buys of Q2?
Let me know in the comments!
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