It’s quite interesting that Viking Global dedicated a whole paragraph on this issue in its most recent investor letter. Courtesy of DealBreaker,
We are often asked by investors how we think about owning stocks that are widely held by other hedge funds. There is no categorical answer to this question, but I would like to discuss some of the factors we consider when establishing and maintaining positions in companies known to be popular with our peers. First and foremost, the critical issue is whether we are ultimately proven right in our analysis. Every single position we take has been independently researched by a Viking analyst and each investment decision has been thoughtfully deliberated by one or more of our portfolio managers. We do not borrow conviction from another firm or individual, although we frequently find it informative to talk to other investors to understand the attributes they value. These conversations can help us better assess what has already been reflected in the prevailing stock price. Incidentally, we often find the greatest success in investments where we have a differentiated view from the Street, but we do not shy away from high conviction ideas just because other hedge funds are involved. Although we thrive on standing alone, we do not take positions opposite other firms just to be contrarian. We recognize that all the shares of a given company must be owned by someone and it can be comforting to know that the other shareholders represent firms that we respect rather than not. There is obviously some risk associated with being in an investment alongside likeminded investors who may have been trained in the stock-picking trade in similar ways in that we may decide to sell at the same time. To limit the consequences of crowded exits, we pay attention to the liquidity of the stocks we trade and take large positions only in the most liquid stocks in the world. The problem of crowding is most acute in our shorts due to the risk of unlimited loss and the potential for cancelled borrow arrangements. Here we do tread carefully. As you are aware, we are guarded in disclosing our shorts to anyone and we do on occasion limit the size of our positions, or eliminate them altogether, when we perceive a position to be tight in the borrow market or crowded by equity long-short investors. Ultimately, we live and die by our analysis, portfolio management skills and efforts to contain risk – managing crowded trades is merely another challenge we face in delivering attractive returns at reasonable risk.
We know that Tiger Cubs and Tiger Seeds graduated from Julian Robertson’s training camp sometimes own highly correlated portfolios on the long side. See our recent two blogs for more information.
- 50 Most Popular Stocks Held by Julian Robertson’s Tigers
- The Ultimate Guide to “Tiger Cubs” and “Tiger Seeds”
We are curious that whether our recent blogs on Tiger Cubs and Tiger Seeds led to Viking Global’s discussions.