Whale Rock Capital Management has increased its exposure to a number of the Magnificent Seven stocks.
These stocks are part of the fund’s strategy as it has staged a strong turnaround over the past one and a half years, after suffering sharp losses in 2021 and 2022.
The long-short firm headed by Alex Sacerdote posted an 18.9 percent gain in its hybrid fund this year through May, following gains of 18 percent for all of 2023. Its share class that invests only in public securities is up 25 percent through the first five months of the year, after surging 31.8 percent in 2023. Its long-only fund is up 18 percent on top of last year’s 59.3 percent gain.
Despite these strong gains, Whale Rock has a long way to go to return to its high-water mark after its hybrid fund lost 45 percent in 2022 and 9 percent in 2021.
One major reason for Whale Rock’s recent turnaround is its short book. This year alone, it is flat as the market has risen by double digits, according to an investor. On the long side, though the overall stock market has rallied for the past 18 months, the hedge fund firm has increasingly expanded its exposure to a number of the so-called Magnificent Seven stocks, which have significantly outperformed the broad market.
At the end of the first quarter, the four largest U.S. longs, accounting for roughly 37 percent of assets, were members of this elite, high-flying group. Whale Rock initiated positions in two of them in the second half of 2022.
For example, in fourth-quarter 2022, Sacerdote smartly jumped into chip giant Nvidia, the top-performing stock since then. It became Whale Rock’s largest long at the end of March 2024, accounting for 11 percent of U.S. assets after the firm boosted the stake by 62 percent in first-quarter 2024. The stock more than tripled in 2023 and has already surged 160 percent this year .
E-commerce giant Amazon became the second-largest long at the end of the first quarter, after Whale Rock doubled its stake. It initially invested in the company in 2015. The stock is up about 25 percent this year.
Facebook parent Meta Platforms is the third-largest long, slipping from the top spot at year-end. Whale Rock initiated a position in the third quarter of 2022. The stock has jumped about 46 percent this year. Cloud giant Microsoft is the fourth-largest long and is up more than 18 percent in 2024.
This is only part of the Whale Rock story, however. Several other issues that are not among the most widely held stocks have performed even better than most of Whale Rock’s Magnificent Four.
For example, No. 5 long Nu Holdings, a Latin American fintech, is up more than 40 percent for the year. Whale Rock initiated the position in fourth-quarter 2021.
The firm has also benefited from mobile advertising company AppLovin Corp., which became its 11th-largest long when it initiated the position in the first quarter of this year. The stock surged 77 percent in the first quarter, though it has slid in recent days on reports that Apple may be changing its advertising attribution framework.
Celestica, which the hedge fund bought in the second half of last year, has been a huge winner. Shares of the electronics manufacturing services company have nearly doubled this year and have swelled nearly four times since the end of June 2023.
Last year, Whale Rock enjoyed huge gains from server company Super Micro Computer, whose stock surged about three and a half times in 2023 alone. The stock was the 24th-largest long at year-end. Whale Rock liquidated the position in the first quarter of this year. But the stock has continued to surge and is up about 170 percent year-to-date.
Sacerdote was previously an analyst and sector portfolio manager at Fidelity Investments. His first Wall Street job was at Smith Barney, working in its technology, media,and telecom investment banking group. He launched Whale Rock in 2006. The firm was managing $13 billion at the end of 2021. At year-end, it had $8.7 billion in regulatory capital, which includes borrowed funds.
In a regulatory filing, Whale Rock said it seeks to identify technological, social, and economic trends that generate significant product cycles and industry inflection points and then analyze the subsectors and/or companies with the most exposure (both positive and negative) to these trends.
Once these significant trends and inflection points are identified, Whale Rock says, it looks for companies whose sales and profits will benefit from them. When it comes to short-selling, the hedge fund looks for companies that will be negatively impacted by these trends. As for private equity investments, Whale Rock focuses on later-stage private financings that it believes present a one- to three-year exit opportunity. It says it may also make investments in earlier-stage private companies.