We have already chronicled that many hedge funds with ties to Julian Robertson Jr. lost money last year, while few outperformed the equity markets.
However, one fund that wound up beating out all of the Tiger descendants is Robert Bishop’s Impala Fund, managed by his New Canaan, Connecticut–based firm, Impala Asset Management.
The long-short equity fund finished the year up 25.1 percent after enjoying a huge surge in the second half of the year. Bishop’s new Impala Resource Master Fund, which began trading on August 1, returned 18 percent through the end of the year.
A major reason for Impala’s success: Unlike most of the Tiger crowd, Bishop does not emphasize technology and Internet companies. He has always gravitated toward economically sensitive industries such as airlines, energy, commodities, homebuilders, and forest products companies.
Earlier in his career Bishop was a paper and packaging analyst at Salomon Brothers from 1986 through 1992, where he was an Institutional Investor All-America Research Team member. When he served as an analyst and managing director at Tiger, from 1992 through 1995, he specialized in cyclical stocks. As a principal at Maverick Capital, from 1998 to 2002, he oversaw the Dallas firm’s investments in basic industries, including manufacturing, commodities, transportation, energy, and other cyclical industries. And in his short stint as chief investment officer at Soros Fund Management, Bishop expanded the firm’s orientation toward cyclicals.
Bishop, who launched Impala in 2004 and now manages $2.4 billion, learned that it is not as important to find the very best companies in a particular sector as it is to catch the inflection point in a cycle when conditions are moving from bad to average. This is when most stocks within these economically sensitive groups rapidly move up.
And right now Bishop believes he has caught an inflection point in commodities. After the Impala Fund gained 8 percent in the third quarter, Bishop told clients in a letter dated October 31: “We continue to believe that we are in the early innings of a nice commodity cycle. We have maintained that we weren’t sure whether this was a cyclical move or a secular move (2 years or longer). We are becoming more confident that it could well be a secular move as new supply additions over the next three years for a slew of commodities are minimal, while demand from emerging markets is improving.”
Bishop told clients the firm sees stronger emerging-markets growth in China, Brazil, India, Indonesia, Russia, and other nations, stressing that emerging markets account for 60 percent to 75 percent of global demand for materials such as copper, steel, and crude oil.
Sure enough, Impala gained another 7.2 percent in the fourth quarter, while the Impala Resource Master Fund surged 16 percent in the fourth quarter, including more than 18 percent in October and November alone.
The funds no doubt benefited from the market’s post-election rally in cyclicals, which petered out a bit in the final two weeks of the year before resuming this year.
The new fund, which managed $214.5 million at year-end, is described by the firm in an earlier letter as a high-octane portfolio that will be substantially net long and will allocate to commodities and related companies.
At the end of the third quarter, two stocks accounted for about 30 percent of the entire firm’s total U.S. equity longs.
Teck Resources accounted for 16.7 percent of U.S. longs after the firm boosted its stake by nearly one third in the September period. Teck was also the largest long of the Impala Resource Master Fund and the only stock among this fund’s top five holdings as of November 30 that also ranked among the firm’s top ten holdings in the third quarter, the most recent period for which firms must disclose their U.S. equity holdings.
NVR accounted for 14 percent of the firm’s assets although it did not rank among the Resource fund’s top five holdings (the Impala Fund’s December statistical report, also obtained by Alpha, does not identify specific holdings).
Shares of Teck, a Canadian metals and mining company, rose 11 percent in the fourth quarter and 52 percent in the second half of the year. They also surged more than 400 percent for the year.
NVR, a homebuilder and mortgage company, gained less than 2 percent in the final quarter but fell more than 6 percent in the second half of the year.
Rio Tinto, the British-Australian metals and mining company and the firm’s third-largest long, rose 15 percent in the final quarter and 23 percent in the second half.
Trucking giant Swift Transportation Co., the firm’s fourth-largest long, was down slightly in the fourth quarter but up more than 50 percent in the second half of the year.
Engineering and construction giant Fluor Corp., the fifth-largest long, gained a little more than 2 percent in the fourth quarter and 6.6 percent in the second half.
Meanwhile, Freeport-McMoRan, the Resource fund’s second-largest long, jumped 21 percent in the fourth quarter alone. Oil giant Hess Corp., the fund’s third-largest long, jumped 16 percent in the third quarter. First Quantum Minerals, a Canadian mineral producer, rose 23 percent, while United States Steel Corp. surged 75 percent in the final quarter. U.S. Steel is also the firm’s 11th-largest long.
Whether Bishop can sustain these gains will depend in large part on whether this really is one of those rare inflection points and an early inning of the commodity cycle.
