Hedge fund spending $70M for these tech stock ideas

Plans by Coatue Management to spend $70 million on research this year has so far yielded three themes for long-term investing in technology.

Philippe Laffont’s hedge fund firm wrote in a letter to clients of its long-only fund—it does not short, or bet against, stocks—that it sees opportunities in three major areas:

• Companies with big “TAM.” TAM stands for total addressable market and winners in the category often have innovative technologies that dominate competitors. “Not only is underlying revenue growing rapidly, but these platforms can also generate new revenue streams in the future,” the letter said. Examples given by Coatue include social network Facebook and Chinese media giant Tencent.
• Companies with smart capital allocation. Even in mature, slower-growth markets, “astute management teams can enhance returns through capital allocation via share buybacks, dividends and acquisitions, offering the investor growth at a reasonable price.”Examples include longstanding Coatue holdings in the cable TV industry such as Charter Communications and Liberty Global and chipmaker Avago Technologies.
• Companies for the “mobile Internet.” The next generation of great Web-related companies will be outside the traditional technology, media and telecommunications sector. “There is every reason to believe that this disruption will eventually permeate all sectors of the global economy.” Examples cited include Uber and Airbnb.

The May 19 letter, obtained by CNBC.com, said the long-only fund managed $614 million as of March 31 and had gained 7.9 percent net of fees in the first quarter versus 2.4 percent for the MSCI World Index.The fund is up 45 percent since inception in May 2013 versus 21 percent for the same benchmark.

A spokesman for Coatue declined to comment.

Coatue is best known for its tech-focused hedge fund, which bets for and against tech stocks. It also has a fund that focuses on private companies, often fast-growing businesses before they go public. Top holdings by the hedge fund, according to disclosures as of March 31, include Apple, Avago, Netflix, Charter and Facebook.

Laffont is a veteran of Julian Robertson’s Tiger Management, the hedge fund firm that spawned other prominent tech investors including Chase Coleman’s Tiger Global and Lee Ainslie’s Maverick Capital, a group often dubbed “Tiger Cubs.”

New York-based Coatue managed approximately $9.4 billion overall as of Dec. 31, 2014, according to its most recent regulatory filing. The firm said in the letter that it intends to spend $70 million on investment research across all its strategies.