Tracking Top Funds Activity: Q1 2012

In my last comment on hedge funds trading euro misery, promised to go over the trading activity of top funds during Q1 2012. U.S. markets were closed on Monday for Memorial Day, giving me some time to put this comment together.

Before I go over some findings with you, a small preamble to get you familiarized with 13F filings and how they are used and misused by investors and the media. From the SEC website:

An institutional investment manager that uses the U.S. mail (or other means or instrumentality of interstate commerce) in the course of its business, and exercises investment discretion over $100 million or more in Section 13(f) securities (explained below) must report its holdings on Form 13F with the Securities and Exchange Commission (SEC).

In general, an institutional investment manager is: (1) an entity that invests in, or buys and sells, securities for its own account; or (2) a natural person or an entity that exercises investment discretion over the account of any other natural person or entity. Institutional investment managers can include investment advisers, banks, insurance companies, broker-dealers, pension funds, and corporations.

Form 13F is required to be filed within 45 days of the end of a calendar quarter. The Form 13F report requires disclosure of the name of the institutional investment manager that files the report, and, with respect to each section 13(f) security over which it exercises investment discretion, the name and class, the CUSIP number, the number of shares as of the end of the calendar quarter for which the report is filed, and the total market value.

The securities that institutional investment managers must report on Form 13F are “section 13(f) securities.” Section 13(f) securities generally include equity securities that trade on an exchange (including the Nasdaq National Market System), certain equity options and warrants, shares of closed-end investment companies, and certain convertible debt securities. The shares of open-end investment companies (i.e., mutual funds) are not Section 13(f) securities. Section 13(f) securities can be found on the Official List of Section 13(f) Securities. The Official List is published quarterly and is available for free on the SEC's website. It is not available in paper copy format or on computer disk.

You can search for and retrieve Form 13F filings using the SEC's EDGAR database. To find the filings of a particular money manager, use the "Companies & Other Filers" search under "General Purpose Searches" and enter the money manager's name. To see all recently filed 13Fs, use the "Latest Filings" search function and enter "13F" in the "Form Type" box.

You can learn more about Form 13F filings and the applicable statutory and regulatory provisions, as well as obtain a copy of the Form and instructions and the Official List of Section 13(f) Securities, by accessing Frequently Asked Questions About Form 13F prepared by the SEC’s Division of Investment Management.

Luckily for us, a lot of the information we require is already available in a timely fashion on the NASDAQ site (ie. 45 days of the end of a calendar quarter). You can even slice and dice the data to drill down into the holdings of various funds.

For example, in the search box at the top right hand corner of the NASDAQ site, type in "Citadel" to get the institutional portfolio of Citadel Advisors, one of the best multi-strategy hedge funds in the world. Once there, you will see the following on your screen (click on image to enlarge):

You will see the report date, position statistics, sector weightings, etc. From here you can do many things to slice the data of their holdings for Q1 2012. For example, you can click on the green tablets to get new, increased, decreased, activity or sold out positions.

If you want to see where Citadel put the most dollars at work, you can click below that on the hyperlink "value of shares ($1,000s)". Click twice on each of these links to get positions in descending order. Once done, you should see this (click on image to enlarge):

Here, you will a ranking of the dollar-weighted positions of Citadel Advisors' total portfolio as of March 31st, 2012. (Note: you can do the same thing with new holdings and increased activity by clicking there first on the green "new" tag and then twice on "value of shares ($1,000s)" column).

We can immediately notice that even though they cut their holdings of Apple Inc (AAPL) by 19%, it was still their largest holding at end of Q1. They also increased their holdings of Oracle (ORCL) by 927%. According to this, the biggest increase in shares in their dollars at work was in Colgate-Palmolive (CL), an increase of 9,604%, however, this isn't their biggest position.

When reading these 13F reports, you have to be extremely careful not to interpret too much into what you see. Always keep the following in mind:
  1. Elite hedge funds are not gods. Even the best make mistakes and are hardly stellar market timers. Reuters reports some hedge funds are taking bets against core eurozone bonds, but I think it's a foolish gamble that will end up backfiring on them.
  2. Macro dominates markets. The news typically driving individual shares isn't company specific. These schizoid markets are driven primarily by macro news coming out of Europe and that is how the best hedge funds are trading euro misery.
  3. Data is lagged. By the time the data on 13F is public, most hedge funds and mutual funds can easily churn their portfolio over several times. I'm exaggerating as the truth is it's much harder to do this the bigger you get, but the point is that markets are dynamic, not static.
  4. Top funds know they are being spied on. They use this to their advantage to throw many other fund managers and retail investors off. For example, if you bought Apple when Q4 2011 data came out, thinking all the best hedge funds were switching gears, piling into Apple, you would have made a wrong presumption at the wrong time. Also, many times, funds short or dump stocks they are seemingly buying. Be careful.
  5. Misusing this information is poison for your financial health. Never, ever pile into any stock based on what some hedge fund or top asset manager is doing in their portfolio. You will get killed, plain and simple.

Now that I got that out of the way, time to get to work and present some findings. Will go over top hedge funds, mutual funds/ asset managers, endowment funds, pension funds and sovereign wealth funds. I will even go over some family offices.

It's impossible to go over everything here, but I will give you the tools to examine the holdings of top funds and leave it up to you to decide how to use this information or whether or not you want to use it.

My advice, unless you're an expert, discard this information. In the hands of an amateur, it's like giving a loaded to gun to a child to practice shooting moving targets. Someone is going to get seriously hurt.

So why do I track activity from top funds? Because I want to gauge their risk appetite retrospectively and see where they were putting their actual money at work. Any hedge fund manager can say what they want on television, but when you peak inside their actual book, you get to see if what they're saying is how they're actually investing.

I like seeing funds initiate or add sizable positions to stocks and sectors that have experienced significant pullbacks. Importantly, when several top funds are adding significantly to their portfolio as shares of a company decline, I start paying attention for a possible turnaround.

Below, I will break up top funds by style, provide a link to their holdings and write a brief comment about where they're investing. Remember, you don't have actual position level data on a daily basis, and things can change drastically, but this information gives you some insight into their portfolios.

Top multi-strategy hedge funds

As the name implies, these hedge funds invest across a wide variety of hedge fund strategies like L/S Equity, L/S credit, global macro, convertible arbitrage, risk arbitrage, volatility arbitrage and statistical pair trading. Unlike fund of hedge funds, the fees are lower because there is a single manager managing the portfolio, allocating across various alpha strategies as opportunities arise.

Here are links to the holdings of some top multi-strategy hedge funds I track closely:

1) Citadel Advisors

2) SAC Capital Management

3) Farallon Capital Management

4) Peak6 Investments

5) Kingdon Capital Management

6) Millennium Management

7) Eton Park Capital Management

8) Highbridge Capital Management

9) Pentwater Capital Management

10) HBK Investments

Comment: Already went over Citadel above. SAC Capital added significantly to Murphy Oil (MUR), Schlumberger (SLB), Sirius XM (SIRI), Walter Energy (WLT) and Transocean (RIG) . Just like Citadel, they also added significantly to Oracle (ORCL). A lot of these stocks have pulled back nicely since the end of Q1, representing a good entry level.

Farallon added to Kinder Morgan (KMI), Express Script (ESRX) and initiated new positions in Hudson pacific Properties (HPP), Apple (AAPL) and Priceline (PCLN).

Peak6 initiated sizable new positions in Hartford Financial (HIG), McDonald's (MCD), Starbucks (SBUX), Google (GOOG), Microsoft (MSFT) and Yahoo (YHOO).

Kingdon Capital Management increased its holdings of Apple but also added a new sizable positions in Valero Energy (VLO), Wal Mart (WMT) and Tyco international (TYC).

Millennium Management added to Kinder Morgan (KMI), Williams Companies (WMB), AON Corporation (AON), and Sempra Energy (SRE).

Top Global Macro Hedge Funds

These hedge funds gained notoriety because of George Soros, arguably the best and most famous hedge fund manager. Global macros typically invest in bond and currency markets but the top macro funds are able to invest across all asset classes, including equities.

Soros and Stanley Druckenmiller, another famous global macro fund manager with a long stellar track record, have converted their funds into family offices to manage their own money and basically only answer to themselves (that is the sign of true success!).

1) Soros Fund Management

2) Duquesne Family Office

3) Bridgewater Associates

4) Caxton Associates

5) Tudor Investment Corporation

6) Moore Capital Management

7) Balyasny Asset Management

Soros Fund Management added significant positions to Sara Lee Corporation (SLE) and Elan Corporation (ELN) and initiated significant new positions in CVR Energy (CVI), Chevron Energy (CVX), and Macy's (M). The fund also increased its holdings of SPDR Gold shares (GLD).

Stanley Druckenmiller's Duquesne family office sold out of Apple and increased its holdings of Yum Brands (YUM), its top position, and McDonald's (MCD). The family office also initiated many new positions in Altria Group (MO), Elan (ELN), Starbucks (SBUX), Nike (NKE), Kraft (KFT), Merck (MRK), Wells Fargo (WFC), Home Depot (HD) and Broadcom (BRCM).

I will leave it up to you to explore the top dollar-weighted holdings of the rest of the funds in this group and the rest of the funds below. It's time consuming but well worth tracking. I like putting some of their top holdings on my radar, especially when they get hit hard, and use technical analysis and my macro reading of markets to see where opportunities lie and where to take opportunistic risk.

Top Quant Hedge Funds

These funds use sophisticated mathematical algorithms to initiate their positions. They typically only hire PhDs in mathematics, physics and computer science to develop their algorithms.

1) Renaissance Technologies

2) DE Shaw & Co.

3) Two Sigma Investments

4) Numeric Investors

5) Analytic Investors

Top Long-Only Funds

These are among the top long-only funds that everyone tracks. They include funds run by billionaires Warren Buffet, Seth Klarman, and Ken Fisher.

1) Bershire Hathaway

2) Fisher Asset Management

3) Baupost Group

4) Fairfax Financial Holdings

Top Long/Short Hedge Funds

These hedge funds go long shares they think will rise in value and short those they think will fall. Along with global macro funds, they command the bulk of hedge fund assets. There are many L/S funds but here is a small sample of some well known funds.

1) Tiger Global Management

2) Third Point

3) Greenlight Capital

4) Maverick Capital

5) Fairholme Capital

6) Adage Capital

7) Marathon Asset Management

8) JAT Capital Management

9) Coatue Management

10) Jana Partners

11) Leon Cooperman

12) Artis Capital Management

13) Fox Point Capital Management

14) Jabre Capital Partners

15) Lone Pine Capital

16) Paulson & Co.

17) Pershing Square Capital Management

18) Brigade Capital Management

19) Saba Capital Management

20) Appaloosa Capital Management

21) LSV Asset Management

22) Hussman Strategic Advisors

23) TPG-Axon Management

24) Tocqueville Asset Management

25) Brookside Capital Management

26) Blue Ridge Capital

27) Iridian Asset Management

28) Tremblant Capital Group

29) Vinik Asset Management

30) Visium Asset Management

31) Cadence Capital Management

32) Scout Capital Management

33) Karsh Capital Management

34) Brahman Capital

35) Diamondback Capital Management

36) Glenview Capital Management

37) Perry Corp

38) Silver Point Capital

39) Steadfast Capital Management

40) Brahman Capital

41) T2 Partners Management

42) Pine River Capital Capital Management

43) Gilder, Gagnon, Howe & Co

44) Viking Global Investors

Top Sector Specialized Funds

I like tracking activity funds that specialize in real estate, healthcare/biotech, retail and other sectors like small caps and micro caps. Here are some funds worth tracking closely.

1) Cohen & Steers

2) Tiger Consumer Management

3) Orbimed Advisors

4) Sectoral Asset Management

Southeastern Asset Management

6) Bridgeway Capital Management

Top Mutual Funds and Asset Managers

Mutual funds and large asset managers are not hedge funds but their sheer size makes them important players. Some asset managers have excellent track records. Below, some funds that I track closely.

1) Fidelity

2) Blackrock Fund Advisors

3) Wellington Management

4) AQR Capital Management

5) Sands Capital Management

6) Dodge & Cox

7) Eaton Vance Management

8) Grantham, Mayo, Van Otterloo & Co.

9) Geode Capital Management

10) Goldman Sachs Group

11) JP Morgan Chase & Co.

12) Morgan Stanley

13) Manulife Asset Management

14) RCM Capital Management

15) UBS Asset Management

15) Barclays Global Investor

16) Tocqueville Asset Management

Pension Funds, Endowment Funds, and Sovereign Wealth Funds

Last but not least, I track activity of some pension funds, endowment funds and sovereign wealth funds. I like to focus on funds that invest in top hedge funds and have internal alpha managers. Below, a sample of funds I track closely:

1) Ontario Teachers' Pension Plan

2) Canada Pension Plan Investment Board

3) Caisse de dépôt et placement du Québec

4) APG All Pensions Group

5) Harvard Management Co.

6) Norges Bank

I have given you an excellent list of top funds I track closely. There are many more. On NASDAQ's site, you can also enter symbols of U.S. stocks in your portfolio to see who the top holders are and whether they have been adding to their holdings.

For example, if you check out RIMM's institutional ownership, you'll see Fairfax Financial is still betting on the BlackBerry's revival, doubling its stake in Q1. Also, Renaissance Technologies, the best quant hedge fund, initiated a sizable position in RIMM in Q1.

There is a lot of information to assimilate. Again, if you are not a professional trader or fund manager, be careful and never follow any fund blindly. If you do, you will get burned.

Finally, despite renewed concerns in Europe, I remain bullish and think smart money used the latest pullback to load up on risk assets. I like financials (AIG, BAC, JPM), coal stocks (ANR, CLF, WLT), nat gas shares (ECA), copper (FCX), oil shares (CVX, COP, XOM, RIG, etc.), tech shares (GOOG, CSCO, JDSU, CIEN, RIMM, etc.) and think investors need to move well beyond Grexit and other doomsday scenarios (like a hard landing in China). I'm even selectively bullish on some gold shares here!

Hope you enjoyed this comment and before I forget, let me kindly remind you to subscribe and/or donate to this blog by going to the top of the page and clicking on the PayPal links to subscribe or donate.

Thank you and have a great day. Off to Toronto for a couple of days and will see if I post anything while there. Will gladly add funds to the list above but they have to have long, stellar track records.

Speaking of excellent money managers, does anyone recognize the person at the top of this post? His political views aside, he's my favorite money manager of all-time and arguably the best trader in the history of markets with unbelievable risk-adjusted returns (Hint: He quit the business a long time ago to manage his own money and was profiled in the original Market Wizards).

Below, Bloomberg reports on what hedge funds bought and sold in Q1. Notice their focus is on banks and technology. Also, Paula Vasan, Managing Editor of aiCIO, interviewed Jim MacLachlan, Global Head of Equity Manager Research at Towers Watson who talks about how to weed out 'alpha-pretenders'. Excellent interview, available here.