Tuesday, November 15, 2011

Hedge Funds Going Gaga Over Apple?

Robert Holmes of the Globe and Mail reports, Apple attracts more hedge fund investors:
Apple ritually tops the list of “must-have” stocks for hedge fund managers, measured by Goldman Sachs’ so-called VIP list. But during a tumultuous third quarter for the gadget maker, hedge funds were split into believers and non-believers. During the third quarter, Apple co-founder Steve Jobs stepped down as the company’s CEO, handing over the reins to Tim Cook. Days after the quarter ended, Jobs died.

Despite the management change, Apple shares jumped during the third quarter, rising more than 13 per cent and outpacing the 13 per cent drop in the S&P 500. While some hedge fund managers were likely enticed by Apple’s valuation – the stock trades at a forward price-to-earnings ratio of less than 10 before the company’s enormous cash position is backed out – others seemed happy to book a profit on their Apple trade after the stock passed through the $400 (U.S.) price level during the quarter. Those professional investors include Steve Cohen and David Tepper.

Here are the prominent hedge fund managers who were buying and selling Apple during the third quarter:

David Shaw, D.E. Shaw & Co. – The New York-based investor is the largest hedge fund holder of Apple after adding 481,000 shares to his position during the third quarter. The fund’s total position stood at 2.4 million shares as of Sept. 30.

David Einhorn, Greenlight Capital – Einhorn’s Greenlight Capital added to its established position in Apple by purchasing 236,000 shares in the third quarter, bringing its holding to 1.3 million shares.

Robert Citrone, Discovery Capital – The hedge fund manager, based in South Norwalk, Conn., counts Apple as its largest disclosed holding and is the second-biggest hedge fund owner of Apple shares. The fund bought 90,000 shares in the third quarter, increasing its total position to nearly 2.2 million shares.

Steven Mandel, Lone Pine Capital – A former student of legendary hedge fund manager Julian Robertson, Mandel bought 82,000 shares of Apple, taking his entire stake to a little over 2 million shares.

Chase Coleman, Tiger Global – The New York-based fund added to its holding in Apple, buying 198,000 shares. Tiger Global held about 1.7 million shares of Apple as of Sept. 30. Apple is the second-largest disclosed holding for Coleman’s hedge fund.

Phillipe Laffont, Coatue Management – Laffont’s hedge fund, based in New York, picked up 19,000 shares of Apple, becoming the fifth-biggest hedge fund holder of Apple, with 1.3 million shares. Apple is the largest disclosed holding for Coatue Management.

Andreas Halvorsen, Viking Global – Halvorsen’s New York-based fund was the biggest buyer of Apple in the third quarter, initiating a brand-new position in the iPhone and iPad maker after picking up 1.1 million shares. Viking Global is now the 10th-largest hedge fund owner of Apple stock.

Eric Mindich, Eton Park Capital – After initiating a new stake in Apple in the second quarter, the long/short hedge bought another 100,000 shares to bring its total position to 600,000 shares.

Leon Cooperman, Omega Advisors – Cooperman, the legendary hedge fund manager, bought about 90,000 shares of Apple. Omega Advisors now owns 206,000 shares of the company.

George Soros, Soros Fund Management – The billionaire fund manager, who will close his fund to outside investors this year, picked up 12,000 shares of Apple, giving him about 83,000 as of Sept. 30.

Lee Ainslie, Maverick Capital – The Dallas-based fund slashed its holding in Apple, selling 769,000 shares. Maverick Capital held only 475,000 shares of Apple as of Sept. 30.

Jeffrey Vinik, Vinik Asset Management – The Boston-based hedge fund manager, known for his secrecy, cut his position in Apple by 540,000 shares, leaving his fund with about 310,000 shares.

Larry Robbins, Glenview Capital – The New York-based hedge fund manager, who used to work for Leon Cooperman at Omega Advisors, completely sold out of his 482,000-share stake in Apple one quarter after buying those shares.

Steven Cohen, SAC Capital Advisors – Based in Stamford, Conn., Cohen’s active fund sold almost 337,000 shares of Apple. SAC Capital owned more than 261,000 shares of the tech giant as of Sept. 30.

James Simons, Renaissance Technologies – The New York-based fund, which employs a quantitative strategy, sold about 282,000 shares of Apple in the third quarter. The quant fund owned 1 million shares as of Sept. 30.

Phillip Gross, Adage Capital – The Boston-based hedge fund is the seventh-largest hedge fund owner of Apple, with more than 1.2 million shares, but Gross sold about 179,000 shares of the gadget maker during the third quarter.

David Tepper, Appaloosa Management – The headlines around Tepper’s third-quarter moves center around his dumping of bank stocks, but Tepper also quietly sold more than 161,000 shares of Apple. Appaloosa owned only 38,000 shares of Apple as of Sept. 30.

Ray Dalio, Bridgewater Associates – The world’s largest hedge fund, based in Westport, Conn., was a seller of Apple in the third quarter. Dalio’s fund completely sold out of its position of 31,000 Apple shares.

Barry Rosenstein, Jana Partners – The activist investor cut his position in Apple by 39,000 shares in the third quarter, leaving his hedge fund with 235,000 shares as of Sept. 30.

So what do I think of hedgies plowing into Apple in Q3? To be truthful, not much. Every fund owns Apple and they're all playing the beta boost by pumping money into the biggest tech name. I love Apple's products (iPod and iPad but will never give up my Backberry!) but think they face stiff competition from Amazon (AMZN), another company which Soros added shares in Q3.

What else did Soros buy in Q3? Murray Coleman at Barron's reports, Soros Juggles Gold, Tech Stakes; Buys SNDK, MU, MSI, JDSU:

While George Soros says he’s shifting away from running outside money and starting a private office, his hedge fund firm was busy in the third-quarter increasing its stakes in gold and technology.

Government filings show that Soros Fund Management LLC reported adding a new debt and equity stake in SanDisk (SNDK).

Soros also kept juggling his precious metals holdings. In Q3, he added a call option for 145,000 shares in the SPDR Gold Trust (GLD) valued at $22.9 million. He also reported owning put options on 120,000 shares of the fund worth $19 million.

In his firm’s quarterly filing with the SEC, Soros also reported:

  • He added 484.5 million senior convertible securities to his Micron Technology (MU) position, bringing the total stake to a value of around $477.6 million.
  • A new stake in SanDisk senior convertible notes, worth $270.7 million. He also reported a 395,000-share stake in the device maker valued at $15.9 million.
  • An increased bet on Motorola Solutions (MSI)by 934,198 shares to 6.6 million shares, worth $276 million.

Also, Soros raised his holdings in JDS Uniphase (JDSU)by 90.4 million senior convertible notes to a principal of 226.6 million. The position is now valued at $222 million.

In total, the hedgie’s holdings by the end of Q3 had dropped to $5.8 billion, down from $7.1 billion in the previous quarter.

What are some of the other "elite" funds I track? Bloomberg posted an analysis of SAC Capital Advisors's Q3 holdings and reported that it increased its stakes in retailers Target Corp. and Dollar General Corp. in the third quarter.

Lindsey Bell of the Street.com reports that SAC, Bridgewater Go Against Grain, Bet on Emerging Markets:

Prominent hedge fund managers Steve Cohen of SAC Capital and Ray Dalio of Bridgewater Associates are turning to emerging-market ETFs to help improve their fund performance, according to a regulatory releases of their holdings. When everyone else is becoming more concerned about the signs of slowing growth in emerging economies, these managers are turning more bullish, attracted by fast-growing economies and declining debt.

SAC initiated an investment in iShares FTSE Xinhau China 25 ETF(FXI) in the third quarter. The ETF seeks investment results that correspond to the FTSE China 25 Index, which consists of 25 of the largest and most liquid Chinese companies. The ETF's holdings include China Mobile, China Construction Bank and Cnooc. SAC's investment is small when compared with its other positions, but as Cohen looks for ways to pare losses, this may signal a new strategy for the billionaire.

Bridgewater added to its second- and third-largest holdings, the Vanguard MSCI Emerging Markets ETF(VWO) and the iShares MSCI Emerging Markets Index Fund(EEM). Each is designed to mimic equity-market performance in global emerging markets by investing in stocks located in countries such as Brazil, Russia, China, Korea and Taiwan.

Bridgewater originally invested in the two ETFs in 2009, but has aggressively been building his position in each over the past two quarters. Together they account for 25% of Bridgewater's portfolio.

All three of the ETFs have fallen this year and are also down since June 30. But SAC and Bridgewater are betting that as growth in emerging markets outpaces the U.S. and Europe by wide margins, they'll stand to benefit. After all, investing in ETFs is a less risky way to of retaining exposure to emerging markets without putting all your eggs in one basket.

Robert Holmes of the Street.com reports that Renaissance Technologies, the biggest quantitative hedge fund in the world, made more than 400 new purchases in the third quarter but the fund's move to cut stakes Apple (AAPL), Google(GOOG) and several Dow components raises some eyebrows:

Renaissance Technologies' Web site promises "superior returns" for its clients and employees by adhering to mathematical and statistical methods. Several reports say that about half of the hedge fund's 275 employees hold doctoral degrees. The fund was started by Jim Simons nearly three decades ago and uses computer-based models to analyze and automate trades.

RenTec also sold 446,000 shares of Google (GOOG), lowering its stake to 107,000 shares total. While Apple has outperformed the broader market this year with a 17% gain, Google shares are up only 3.2%.

Hedge funds that manage more than $100 million are required to disclose their equity holdings, options and convertible debt on a Form 13F filed to the Securities and Exchange Commission within 45 days of the end of a quarter. Funds aren't required to report short positions betting on declines. RenTec ended the third quarter with nearly 2,600 reported holdings with a market value of $23.5 billion.

Overall, RenTec decreased its stake in 1090 positions and sold completely out of another 626 stocks, including blue-chip names like Exxon Mobil(XOM), Verizon(VZ), General Electric(GE), AT&T(T), PepsiCo(PEP), Amazon.com(AMZN) and Comcast(CMCSA)

The quant fund's newest buys include unsexy names like Microsoft(MSFT), Halliburton(HAL), Freeport-McMoRan(FCX), 3M(MMM), and Emerson Electric(EMR).

RenTec also added to several other large positions, increasing stakes in more than 1,000 companies such as Netflix(NFLX), Goldman Sachs(GS), Schlumberger(SLB) and Disney(DIS).


Bloomberg reports that Paulson & Co., Lansdowne Partners LP and Lone Pine Capital LLC were among investment firms that cut stakes in Citigroup Inc. (C) as shares of the bank slid 38 percent in the third quarter. Paulson & Co is experiencing its worst year and cutting risk in their funds further as the European sovereign-debt crisis roils markets.

Interestingly, Bloomberg also reports that hedge funds raised bullish bets on oil to the most since May as speculation that Europe's leaders will resolve the sovereign debt crisis helped drive crude to a three-month high. And CNBC reports that some of the hedge funds that made the biggest and most sophisticated bets against European sovereign debt began reversing those trades last week. That just tells me that hedge funds are playing La Dolce Beta, hoping to make up for those savage losses in Q3.

Finally, I don't just look at hedge funds. I like to look at what other top fund managers like billionaire Ken Fisher were buying in Q3:

Fisher Asset Management was founded in 1979 by Ken Fisher, the author of seven money management books, three of which are New York Times bestsellers. Fisher has been writing the Portfolio Strategy column for Forbes for more than 26 years. His stock picks beat the S&P 500 overall on average, underperforming the S&P 500 in just three years within the last 14 years. His investments outperformed the index by 24 percentage points in 2009 and 5 percentage points in 2010. We believe that by imitating the best stock picks of Fisher, investors are more likely to beat the market in the long term.

Fisher disclosed owning $547 million worth of Amazon.com Inc (AMZN) in its latest 13F. Fisher increased his position in AMZN by 6% over the third quarter. Amazon reported a 73% drop in its quarterly profit. Its third-quarter net income was $63 million, or 14 cents a share, versus $231 million, or 51 cents a share, a year earlier. But its revenue was $10.88 billion, up 44 percent from the third quarter of 2010. The drop in the profit is mainly due to its heavy spending on new tablet computer and other long-term projects. AMZN returned 0.54% since the end of September. Andreas Halvorsen also invested more than $400 million in AMZN as of June 30, 2011.

Fisher also increased his position in International Business Machines (IBM) and Google Inc (GOOG) over the third quarter both by around 3%. As of September 30, Fisher had $383 million invested in IBM and $363 million invested in GOOG. IBM returned 7.58% and GOOG gained 18.12% since the end of September. IBM reported sales of $26.2 billion for the third quarter of 2011, up 7.8% from the same quarter last year, but still a bit lower than the $26.3 billion predicted by analysts. Third quarter earnings were $3.28 per share, beating the $3.22 per share expectation. Google reported revenues of $9.3 billion for the third quarter of 2011, compared with $7.3 billion for the same period a year ago. Third quarter net income was $2.73 billion, compared with $2.17 billion in the third quarter of 2010. Stephen Mandel initiated a brand new $400+ million of Google stocks during the second quarter.

In the third quarter, Fisher initiated a brand new $43 million position in Gaylord Entertainment Company (GET), a hospitality company operating hotels, and resorts and convention centers. For the three months ending September 30, 2011, Gaylord reported revenues of $225 million, compared with $158 million for the same period a year ago. GET returned 16.96% since the end of September and has a market cap of $1.07B. Ken Griffin’s Citadel Investment Group also invested $5.6 million in GET at the end of June.

Ken Fisher’s favorite U.S. stocks are Johnson & Johnson (JNJ), Oracle (ORCL), Exxon Mobil (XOM), Schlumberger (SLB), and General Electric (GE). Fisher also likes to invest in large cap blue chip European stocks such as Siemens (SI) and Sanofi (SNY).

Fisher sold out Regis Corp (RGS), Synaptics Inc (SYNA), and Companhia Siderurgica Nacional (SID) over the third quarter. Fisher had $33.5 million, $21.1 million and $19.9 million respectively invested in these three stocks, and they had an average return of 26.81% since the end of September, beating the SPY by about 15 percentage points.
This is just a small sample of what elite funds bought and sold during Q3 2011. There is much more information that I'm able to get at a granular level and analyze using my own technical and global macro filters. I'm not going to share this information with my readers for free, however. Instead, I'm toying with the idea of charging $6,000 a year for four quarterly reports -- premium content -- where I cover activity of elite funds every quarter.

Always remember to use this information carefully. Never buy or sell anything based on what "elite" funds are publicly reporting as they often do the opposite or are just plain wrong. These are crazy markets and even the best traders find them difficult to navigate through.

Below, Tim Knight of the Slope of Hope blog thumbs over the ETF universe. As he openly admits, these are frustrating markets where neither bulls nor bears are making money. Trade cautiously.

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