By Svea Herbst-Bayliss
BOSTON (Reuters) - Smarting from its biggest-ever yearly loss, hedge fund Viking Global Investors has reordered its stock picking team and plans to invest more money in financial and consumer stocks and less in pharmaceutical stocks, its co-founder told clients.
The $30 billion firm's biggest portfolio, Viking Global Equities, lost 4 percent last year, marking only the third time since its 1999 launch that it lost money. The broader stock market index S&P 500 gained 12 percent in 2016.
In the letter to clients from Andreas Halvorsen dated January 17 and seen by Reuters on Monday, the firm said it was "very disappointed by these results". It got sector weightings and the size of its bets wrong and shifted its organizational structure to perform better this year.
"In a year when sector selection turned out to be a significant driver of returns, our concentrated bets, being at a decade high, proved to be largely wrong," the letter said.
Halvorsen, who trained at industry legend Julian Robertson's Tiger Management, grew the firm into one of the largest and most successful U.S. hedge funds. But last year's losses prompted some investors, including the state of Rhode Island, to ask for some money back.
Pharmaceutical company Teva , which has lost roughly half its value in the last year, was Viking's biggest loser and has been eliminated from the portfolio, the letter said. Drug companies Allergan (NYSE:AGN) and Valeant Pharmaceuticals (NYSE:VRX) also hurt returns.
Southwestern Energy's losses were especially harmful in the last three months of the year and Viking has now exited the position, the letter said.
Energy company Encana was the year's biggest winner with Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB) also contributing gains. Bank of America (NYSE:BAC), one of the biggest contributors in the last three months of 2016, could rise more, but fund managers have trimmed the position some.
To fix last year's problems, Halvorsen shifted responsibilities and capital, cutting the number of investment team members who report to chief investment officer Dan Sundheim in half to three, the letter said.
Financials have been consolidated under Hani Sabbagh who is working closely with Ning Jin while Steve Mykijewycz and the consumer team is working directly with Ben Jacobs. Viking's most senior portfolio managers and their direct reports already invest about 60 percent of Viking's capital and will oversee more in the months ahead. "We plan to shift more capital towards this group throughout 2017," the letter said.