Isolation is old hat for Eric Jackson. Since he launched his technology-focused hedge fund in 2017, he has been running it from a home office.
Q1 2020 hedge fund letters, conferences and more
The pandemic requires little adjustment in how he works. But it does force investors everywhere to think about which companies will do better in a scarred global economy. In Jackson’s case, the crisis has given his key holdings a huge boost: Zoom Video Communications Inc. and German food app company Delivery Hero SE have lifted his long-short fund at EMJ Capital Ltd. to a 56% gain this year.
Jackson tries to hunt down data on technology usage that will lead him to winners. On Feb. 3, more than a month before the virus was declared a pandemic, Jackson noticed a sudden spike in downloads of the Zoom app in China. He already owned the stock because he liked its video conferencing technology and its CEO. The China numbers persuaded him to double down.
“They are a verb. You don’t see too many verbs in the tech space. When one comes along like Google, you would have been wise to plunk down an investment and stick with it and I think the same is going to be the case for Zoom,” he said. Zoom shares have more than doubled this year.
Hedge funds were hit hard by client withdrawals and investment losses during the March market rout, with global hedge fund assets dropping below $3 trillion for the first time in six years. In Canada, only five of 61 hedge funds tracked by Venator Capital Management Ltd. posted gains in the first quarter of the year.
Jackson runs one long-short fund, which has about $61 million in assets and is up 131% since inception in October 2017, as of Tuesday’s close. It typically owns about 11 to 20 stocks and has a similar number of short positions. Options are part of the strategy: the fund held out-of-the-money put options against some indices that rose sharply in value during the sell-off of late February and March as investors sought to buy protection against further declines.
On the long side, “I’m trying to find companies that I think have a good shot at doubling or tripling over the next two to three years and I typically want to hold them for that long,” he said. As is common in funds that focus on tech growth stocks, there can be high day-to-day volatility.
In normal times, he travels regularly to San Francisco and Silicon Valley to meet with contacts he’s built over decades after working in the tech industry himself. From 2000 to 2004, he worked at Toronto-based VoiceGenie Technologies Inc., a voice-recognition firm acquired by Alcatel for an undisclosed sum in 2006.
“If I start to hear the same name come up over and over again, that’s usually a good sign that the company is just on the cusp of something great,” Jackson said. “So I’m getting behind those companies early, sticking with them, not just sort of selling out quickly.”
Twilio Inc. was his biggest winner in 2018 after hearing about the company through friends and contacts. Shares of the San Francisco-based software maker rose 278% in 2018 and climbed another 10% last year as quarterly results kept beating expectations.
He replaced Twilio in his fund with Delivery Hero and HelloFresh SE, a seller of meal kits. Both have been big contributors to his fund’s surge this year.
“I was into them from last year. But when the pandemic kind of began to emerge and they canceled the NBA season, that was really the first time I realized that this was going to be a be a much bigger deal than I expected at the beginning of the year,” said Jackson, a Brooklyn Nets fan.
Read the full article here by Divya Balji, Advisor Perspectives
