Alkeon Capital Management’s Stock Holdings And Investment Approach

Updated on December 18th, 2020 by Nikos Sismanis

Alkeon Capital Management is a privately owned registered investment adviser out of New York. The company was formed in 2002 as a spin-off from CIBC Oppenheimer.

Two key persons govern the firm, Takis Sparaggis, President and CIO, and Alex Tahsili, who performs the Managing Director role.

They both oversee Alkeon Capital Management’s portfolio, which is valued at approximately $54.0 billion, of which around $11.0 billion is allocated in public equities.

Investors following the company’s 13F filings over the last 3 years (from mid-November 2017 through mid-November 2020) would have generated annualized total returns of 26.4%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 12.2% over the same time period.

Note:  13F filing performance is different than fund performance.  See how we calculate 13F filing performance here.

You can download an Excel spreadsheet with metrics that matter of Alkeon Capital Management’s current 13F equity holdings below:

Keep reading this article to learn more about Alkeon Capital Management.

Table Of Contents

Alkeon’s Approach To Investing

Alkeon has stayed away from the spotlight for decades, publishing limited information regarding its operations and investment philosophy. An interview with management from its early days, however, reveals essential info, which according to today’s holdings, seems to hold to the present.

Its research process is a 100% bottom-up, fundamentally-driven, research-concentrated procedure to investing. Their flagship strategy involves identifying significant potential returns in Technology, Media, Telecom (“TMT”) in the broadest of scope. Applying a bottom-up strategy implies that Alkeon focuses on individual securities rather than on the overall movements in the securities market.

Mr. Sparaggis, who holds the final word for any investment, aims for a 12 to 24-month time horizon for Alkeon’s holdings and discourages short-term trading. Alkeon avoids timing the direction of the market and aims to generate alpha based on its exceptional stock-picking skills. It also has an elaborate network of industry contacts, with whom it is in continuous talks in order to identify industry trends before they become apparent to Wall Street.

Alkeon is primarily focused on investing in stocks with impressive growth rates. Most investors hesitate to invest in this type of stocks due to their excessive price-to-earnings ratios but Alkeon has proved competent in identifying high-growth stocks whose growth more than offsets their high earnings multiple and thus offer outsized returns. Notably the average price-to-earnings ratio of the stock portfolio of Alkeon currently stands at 59.6.

In terms of risk management, the company’s in-house risk manager is responsible for periodic checks to ensure diversification among individual securities and sectors, liquidity, and overall fund exposures.

Finally, Alkeon manages its clients on a pari passu basis. In other words, clients are treated on an equal-footing manner, managed without preference. In comparison, some hedge funds may differentiate among multiple classes of clients, based on their available capital and reputation.

Alkeon’s Top Holdings

Around half of Alkeon’s portfolio consists of public equities, while the rest embodies several options, as hedge funds do to alleviate their risk profile. The company’s picks reflect management’s tech and media-oriented strategy. These two sectors occupy around 60% collectively.

Source: Company Filings, Author

Out of Alkeon’s 118 individual stocks, the top 10 holdings account for around 26% of its public-equities part of the portfolio. That figure reaches about 48% when it comes to its 20 larger picks, which indicates a relatively concentrated allocation of funds.

These figures indicate a somewhat diversified allocation of funds, but investors should realize that the actual diversification is much lower due to the almost exclusive focus of Alkeon on the tech and media sectors.

As of the company’s latest F13 filing, the following are the top 10 holdings of Alkeon.

Alphabet (GOOG)

Alphabet offers several well-known products, such as Ads, Android, Chrome, Google Cloud, Google Maps, Google Play, YouTube, as well as technical infrastructure.

While it has been extremely popular for more than a decade, it is still a high-growth stock. Alphabet has more than tripled its earnings per share over the last nine years. It also has a net cash position of $132 billion (11% of the current market cap of the stock). The huge net cash position is a testament to the strength of the business model of Alphabet and its unparalleled business execution.

Alphabet is supposed to benefit from the pandemic, which has forced people to spend much more time at home and thus more time on their computers.

The company’s most recent Q3 was indeed a blockbuster, with both their quarterly revenues hitting an all-time high of $46.17B and $11.25 respectively. The company is one of the most attractively-priced stocks in the sector as well, trading at around 34 times earnings, despite its consistent growth, massive moat, and AAA balance sheet. Alkeon kept its position constant from its previous quarter.

RingCentral (RNG)

RingCentral is the second-largest holding of the portfolio of Alkeon, comprising 4.2% of its total value. The company offers software solutions that enable businesses to communicate and connect. Its products include RingCentral Office, which facilitates communication across various modes, including high-definition voice, video, SMS and conferencing.

RingCentral has greatly benefited from the coronavirus crisis, which has led numerous companies to adopt a work-from-anywhere model. Companies now require communications solutions in which the employees can work efficiently with their colleagues and their customers from anywhere. RingCentral initiated cloud migration of business communications more than a decade ago and hence it is now ideally positioned to benefit from the transformation of the business landscape which has been caused by the pandemic.

The company has grown its revenue every single year in the last decade, with a greater than 10-fold increase over this period. It has also exceeded the analysts’ earnings-per-share estimates for 21 consecutive quarters. The stock has rallied 123% this year and more than 6-fold in the last three years.

Even better, the company still has ample room to grow further. This was clear in the latest quarter, in which RingCentral enjoyed double-digit growth in messaging and triple-digit growth in video and mobile voice minutes on its Message Video Platform and thus grew its revenue 33% over the prior year’s quarter.

Facebook

Alkeon has been holding Facebook since Q3-2014, and has been building its position contiously, currently featuring an average buying price of around $165. The company continued accumulating shares during Q3, increasing its position by a considerable 33%. It is currently the fund’s third-largest position, and will likely go to become its largest if such additions continue in the short-term.

The stock has nearly quadrupled since the initial purchase and is now hovering around an all-time high, thus showcasing the conviction of the hedge fund, which has been long in FB for years.

Facebook is currently enjoying excellent financials, with a net cash position of $55.6 billion of cash (7% of the market capitalization of the stock). Facebook is one of the extremely few companies that have no debt. This is a testament to the strength of its business model and its perfect execution. Moreover, even though half of the globe uses at least one of the apps of Facebook on a monthly basis, its user base is still growing at double-digit rates.

Furthermore, as its rival social media company Tik Tok is recently facing scrutiny in the U.S., with talks of the app becoming banned across the nation, Facebook’s monopolistic nature is looking more attractive than ever.

Recently FTC and a coalition of states announced filing lawsuits against Facebook (NASDAQ:FBcharging the company with an illegal monopoly. However, even if the company was to be broken in two different entities, this would unlock additional value for shareholders, due to Instagram’s potential valuation expansion.

Microsoft

The diversified portfolio of tech products and services of Microsoft has been ruling the sector’s digital infrastructure. The company’s CEO Satya Nadella has been marvelously transforming the company into a cloud powerhouse. As a result, while the company was considered mature until a few years ago, it has managed to accelerate its growth and post all-time high earnings in the last two years.

Supported by the company’s strong profitability, management has been consistently raising buybacks over the past decade, fruitfully rewarding its shareholders. The amount allocated to stock repurchases has reached new all-time highs over the past four quarters, at nearly $25B. Despite that, Microsoft’s cash position has been growing continually, with the company currently sitting on top of a massive $138B cash pile.

Further, while many companies have chosen to utilize the current ultra-low interest rates to raise cheap debt and buy back stock, Microsoft’s approach has been prudent and thoughtful. Not only are current earnings extensively covering buybacks (52% buyback “payout ratio”), but also the company’s long-term debt position has been substantially dropping over the past few years from $76B in mid-2017 to around $57B, as of its last report.

Alkeon increased its position by 12% during its latest quarter, further building its Microsoft position, which is now its fourth-largest holding.

Amazon

Amazon is Alkeon’s fifth-largest holding, comprising 3.1% of its total value. The online giant has vastly outperformed the S&P 500 over the last three years and thus it has been a major contributor to the aforementioned out-performance of Alkeon versus the broader market.

Amazon benefits from a strong secular trend, namely the continuous shift of consumers from conventional shopping to online shopping. As physical stores carry much higher operating expenses than Amazon, they cannot match its prices and thus the online giant enjoys a wide moat, particularly given its enormous economies of scale.

Amazon has grown its revenues and its earnings per share nearly 10-fold over the last decade. Even better, the secular shift from brick-and-mortar retail to online shopping has accelerated this year thanks to the pandemic.

In the third quarter, Amazon grew its revenue by 37% to $96B and all-time high quarterly income of $6.33B. While the pandemic is likely to subside from next year, the consumers who have recently shifted from conventional to online purchases are likely to adopt online shopping for the long run thanks to its advantages. This helps explain the rally of Amazon stock this year, which is more than likely to continue entering 2021, amid massive net income growth expectations.

MecradoLibre (MELI)

MercadoLibre was founded in Argentina in 1999 and operates online commercial platforms in Latin America. Its product Marketplace is an automated online commercial platform, which enables companies and individuals to list their merchandize and execute sales and purchases online.

Just like Amazon, MercadoLibre greatly benefits from the secular shift of consumers from brick-and-mortar retail to online shopping. This trend has accelerated this year thanks to the pandemic, which has forced numerous consumers to resort to online shopping in order to avoid the health risk associated with the physical stores.

The total online purchases in Latin America have grown at an approximate 19% average annual rate since 2015. In addition, they comprise a much lower portion (3%) of the total retail purchases than the online purchases in the U.S. (12%) and thus there is huge future growth potential, particularly given the tailwind from the pandemic.

On the other hand, many countries in Latin America, such as Brazil, have been severely affected by the high propagation rate of the coronavirus.

Despite the pandemic’s adverse effects, however, the company has been snowballing. MELI delivered revenues of $1.15B, a 90.7% increase year-over-year, as Latin America’s e-commerce prospects continue to expand. While the company is taking its industry by storm, investors should be wary of the stock’s steep valuation, which currently valued the company at 235 times its 2022 earnings. Still, with the stock hitting all-time highs by the day, investors have been focusing on MELI’s growth instead, as the market has become accustomed to such investment cases. Amazon’s trajectory was similar before its economies of scale started delivering robust net income, which is what the market apparently expects from MELI, its Latin American cousin.

The stock is Alkeon’s sixth-largest holding, despite the company trimming its position by 22%, likely to book some profits out of the stock’s non-stop rally.

Cadence Design Systems (CDNS)

Cadence Design Systems provides software, hardware, services and reusable integrated circuit design blocks worldwide.

The company benefits from some generational growth drivers, such as 5G, artificial intelligence and hyper-scale computing. Thanks to these growth drivers, Cadence Design Systems enjoys strong growth in the demand for its relevant software and hardware solutions as well as its Intelligent System Design.

It is thus not surprising that the company has nearly tripled its earnings per share in the last two years. It is also admirable that the company has not missed the analysts’ earnings-per-share estimates for 20 consecutive quarters. This impressive performance helps explain the fact that the stock has more than doubled in the last two years.

The company continued its consistent growth trajectory, delivering all-time high revenues and net income of $666 million and $161 million, respectively. Alkeon has been accumulating shares since 2014, while it increased its position once again during the latest quarter by 8%. The stock is currently Alkeon’s 7th largest position.

Synopsis (SNPS)

Synopsis offers electronic design automation software products that are used to design and test integrated circuits.

The company benefits from a series of major growth drivers, such as artificial intelligence, 5G, high-performance computing, cloud and the proliferation of Smart Everything. Thanks to the booming demand for all the products of Synopsis that are related to the above growth drivers and the relentless complexity of chip and system design under both fabless and vertically integrated strategies, the company is enjoying strong business momentum. Despite the severe recession caused by the pandemic, Synopsis is on track to grow its earnings per share by about 20% this year.

Even better, it is expected to keep growing its earnings per share at a double-digit rate in the upcoming years thanks to its reliable revenue growth and margin expansion. It is also impressive that the company has not missed the analysts’ consensus on both revenues and earnings for 18 consecutive quarters.

On the other hand, investors should be aware of the rich valuation of Synopsis, as the stock is trading at approximately 25 times its expected earnings in 2023. The rich valuation renders the stock vulnerable in the event of a downturn or a broad market correction.

Synopsis is Alkeon’s 8th largest holding. The company increased its position in the stock once again, this time by 12%.

Pinterest (PINS)

Pinterest is Alkeon’s 9th largest holding and accounts for around 2.3% of the company’s portfolio. The company has been publicly traded for just over a year; however, its shares have more than doubled since its IPO. Pinterest has been greatly benefitted from the ongoing pandemic since online traffic for home-improvement, and related ideas have been snowballing amid the work-from-home economy. Q3 revenues hit an all-time high of $442, further fueling investors’ excitement towards the company becoming one of the dominant idea-sharing social networks.

JD.com (JD)

Wrapping up the company’s top 10 holdings is JD.com, which accounts for just over 2% of the company’s portfolio. Operating China’s largest and most efficient e-commerce

Fulfillment and logistics, the company is capitalizing on China’s online sales growth with great success. Shares have more than doubled since last year as the company’s bottom line has also started to produce solid numbers, amid its economies of scale. Still, investors thinking of initiating a position should be wary of risks related to owning Chinese-based equities and their accounting standards.

Final Thoughts

Despite Alkeon’s low profile and preference to not attract media attention, the company is a silent achiever.  Displaying market-beating returns, by unlocking the alpha potential on multiple stocks, management’s skills have been delivering on their promises, taking excellent care of their clients’ capital.

You can download an Excel spreadsheet with metrics that matter of Alkeon Capital Management current 13F equity holdings below: