Vinik Asset Management

In 1996, Jeffrey Vinik founded a hedge fund and rather plainly named it Vinik Asset Management. The returns that ensued, however, were anything but plain.

In the initial eleven months of his management, the hedge fund clocked in over 90%. For the following three years of its existence, Vinik Asset Management generated an outstanding return of roughly 50% every year.

Unfortunately for its investors, the hedge fund stopped taking new funds in October 2000 and returned 4.2 billion dollars to the shareholders. It announced that it will continue to manage money but only for close friends and family. At present, the fund has slightly less than 6 billion dollars in assets under management (translation: rich friends and family!).

Originally founded in Boston, Vinik Asset Management recently moved its headquarters to Tampa. This is in line with Mr. Vinik’s reclusiveness from the limelight and distance from the traditional hedge fund community.

Prior to joining the finance universe, Mr. Vinik, a New Jersey native, went south for his studies and received his BS in Civil Engineering from Duke University in 1981. The reason he studied engineering was because to him “an engineering education seemed like the right foundation for whatever I wanted to do. Additionally, he was “drawn to the use of mathematical and scientific principles to achieve solutions.”

Recently Mr. Vinik reminisced about his time at Duke, “We broke down the problem, analyzed it piece by piece, and figured out the best approach”. In that aspect it was very similar to how he approaches investing today. In any case, he went on to receive an MBA from Harvard Business School in 1985 to better align himself with the world of investments.

Prior to starting Vinik Asset Management, Mr. Vinik was in the very publicly-followed position of portfolio manager of Fidelity’s largest mutual fund – the steadily high performing Magellan Fund that has attracted some of the best portfolio managers including the popular Peter Lynch. During his tenure as the portfolio manager from 1992 to 1996 of the Magellan Fund, Mr. Vinik averaged a return of 17% per year.

While at Fidelity, Mr. Vinik earned a reputation as a risk taker. A self-described value-oriented bottom-up investor, Mr. Vinik often made contrarian plays in individual stocks. Because of that he earned the reputation of an expert stock picker.

In reality, however, Mr. Vinik was more of a sector investor. He would look for specific value stocks within a sector that he felt was poised for a breakout, depending on the current economic cycle. For example, while at the Magellan Fund, Mr. Vinik had felt that retail and household appliances would do well coming out of a recession and bet accordingly in undervalued individual stocks in those industries.

In line with Mr. Vinik’s preference for industry or sector investing, Vinik Asset Management has significantly shifted their investment strategy from stock picking to holding exchange-traded funds. Today ETFs comprise roughly half of his equity portfolio.

Mr. Vinik has outperformed benchmarks for the better part of two decades, but his shift to broader ETFs is a marked departure from the bold plays that defined Mr. Vinik’s career. In addition, the decision to move into ETFs is possibly a sign that Mr. Vinik lacks the analysis (and the humility to acknowledge so) in emerging markets necessary to make specific plays, implying that he lacks “boots on the ground” from an analysis perspective.

Not to confuse the humility with false pride. In one of his rare public statements Mr. Vinik had no problem touting his own horn by saying that he is proud of his “consistent performance over the past 12 years” and that he has delivered “excellent performance, with few down periods and minimal risk to my investors” through many a “up and down markets, crashes and crises”.

Of course, Mr. Vinik’s strategic bets have not always paid off, especially when he has wandered off into new territories. For instance, in 1996 he felt that the equity markets were headed for a downward trend, and made a rather large bet on bonds predicting that interest rates would go down. While Mr. Vinik’s bond play resulted in a return of 11.7% for Fidelity Magellan, it was far behind the 23.9% return of the S&P 500. (His recent foray into gold ETFs was much followed by the media also.)

The bond bet aside, Mr. Vinik’s performance record can stand on its own. His approach to identifying sectors, then investing in value stocks within that sector or through an ETF, has proved to be very successful.

While he does use quantitative analytic models, he is well aware that the markets are not wholly rational. Therefore he takes the extra step of structuring the variables in the model such that he incrementally increases the probability of being right. Additionally, akin to most astute investors, he is wary of emotions and tries to ignore his feelings when investing.

It is only humane to believe that Mr. Vinik must sometimes fail to keep his emotions at bay, however, when he invests in favorite pastime: Owning sports teams. Mr. Vinik currently is the owner of NHL’s Tampa Bay Lightning, as well as the Tampa Bay Storm from the Arena Football League. He is also a minority owner of the Boston Red Sox, and serves on the board of directors for the Liverpool Football Club of the English Premier League.