Wednesday, August 15, 2012

Setting Your Sights on Soros?

So you want to be the next Soros? Well, good luck, here's the closest you'll get. It's that time of the year again when hedge funds and other large funds release their 13F filings, allowing us mere mortals to peek inside their portfolios.

Before you get all excited about peering into hedge fund activity, a word of caution. Someone tweeted this remark yesterday: "Hedge fund cloning and the attention paid to 13F filings is the newest way to lose money on Wall St. There is no free lunch."

I agree. Read numerous articles yesterday going over 13F filings of well known hedge fund managers and wasn't impressed. The reporting is superficial, even comical at times, but there are some decent articles.

Can't repeat this often enough, if you buy or sell based on what hedge funds are reporting, you will get your head handed to you (speak from experience).

Alright, let's go over a decent article. If you want to keep up-to-date, follow me on Twitter (@PensionPulse) where I regularly track news on hedge funds and (less often) private equity funds.

Svea Herbst-Bayliss and Katya Wachtel and Sam Forgione of Reuters report, U.S. hedge fund managers looked to banks in 2nd quarter (merged with article in Globe and Mail):

The flavour of the second quarter for big U.S. money managers was bank stocks, including Morgan Stanley and Citigroup Inc.

Hedge funds Eton Park Capital and BlueMountain Capital Management were among investors that scooped up financials, which as a group are up 15 per cent this year.

Energy companies were also in the spotlight. Activist hedge fund Jana Partners LLC soured on energy stocks as the firm dumped shares of Marathon Petroleum and Hess Corp , while Eton Park’s Eric Mindich revealed that he has an option to buy 4.5 million shares of natural gas producer Chesapeake Energy at an undisclosed price.

It is that time of the year again when hedge funds and other big money managers disclose their U.S. stock holdings at the end of the most recent quarter in so-called 13-F filings.

The filings offer a chance for ordinary investors to see what closely watched money managers like Bill Ackman, Warren Buffett, David Einhorn and Dan Loeb are doing with their investors’ money.

The second quarter was a difficult one for stocks and hedge funds. The benchmark S&P 500 fell 3.3 per cent in the period, while funds on average lost 2.7 per cent in the quarter.

The filings from hedge funds, submitted to the Securities and Exchange Commission throughout the day Tuesday, will no doubt reveal some of that tumult in the stock market.

For more on how big money managers traded in the sector quarter, here is a breakdown by sectors and high-profile stocks.

BANKS

Eton Park’s Mindich said he owned 5.1 million shares of Morgan Stanley and had the right to acquire another 21.5 million shares at an undisclosed price. At the end of the first quarter, he owned 15 million shares.

Mindich also made changes in his holding in Citigroup, in which he owned 5.5 million shares at the end of the first quarter and said he had the right to acquire 12.7 million shares at an undisclosed price at the end of second quarter. At the end of the second quarter, he still held warrants to acquire 102.4 million shares, the same number he held at the end of the first quarter.

BlueMountain Capital initiated a new position in Citi, roughly 623,000 shares, and increased its stake in Flagstar Bancorp by 250,000 shares. It owned 233,505 shares of JPMorgan Chase at the end of the second quarter, up from 80,910 shares.

Not everyone was a fan of banks, however.

Dinakar Singh’s TPG-Axon Capital Management sold its holdings in JPMorgan, which reported an unexpected and enormous trading loss this year from the infamous “London Whale” trade. Singh no longer listed JPMorgan as a holding after owning 3.1 million shares during the first quarter.

HOUSING

Blue Mountain Capital appeared to be betting on a revival of the housing market and opened a new position in the quarter in KB Home, buying 876,165 shares of the home builder. Meanwhile, Jana bought 6.2 million shares of American Realty Capital, a real estate investment trust.

ENERGY

Jana, led by Barry Rosenstein, exited its position in Marathon Petroleum, which had been the fund’s largest stock holding at the end of the first quarter. The fund also sold all of it shares in Hess, another oil company.

Tom Steyer’s Farallon Capital made a big adjustment to its holding of gas pipeline company Kinder Morgan Inc. In the first quarter it held 22.5 million shares but at the end of the second quarter it owned 4 million shares and had warrants to acquire an additional 5.2 million shares.

FOOD and AGRICULTURE

Jana opened a new position in Canadian fertilizer company Agrium, buying 6.5 million shares.

Philippe Laffont’s Coatue Management was bullish on burritos and tacos in the second quarter, adding 185,000 shares of Mexican restaurant chain Chipotle, bringing its total holdings to 567,102 shares.

TECH

Klarman's Baupost Group dramatically increased his Hewlett-Packard Co exposure to 26,850,601 shares from 17,250,000. His Microsoft Corp position was steady at 7 million shares, with a brand new position in Oracle Corp at 15.8 million shares.

HEALTH CARE

David Einhorn's Greenlight Capital moved into health insurers in a big way in the second quarter, potentially getting ahead of the U.S. Supreme Court ruling in June that upheld much of the Obama administration's healthcare law. In the quarter, the closely watched manager opened new positions Aetna Inc, Cigna Corp and WellPoint Inc. For instance, Greenlight added over 6 million shares of Cigna in the period.

John Paulson's Paulson & Co upped its stake in HCA Holdings by 397 percent to 8 million shares, while selling out of Teva Pharmaceuticals Industries Ltd (TEVA.TA), Tenet Healthcare Corp and Medco Health Solutions Inc.

RETAIL

George Soros' family office, Soros Funds Management, opened a new position in Wal-Mart Stores Inc buying 4,831,800 shares. Bill Ackman's Pershing Square Capital Management also no longer lists Family Dollar Stores Inc, the pick he highlighted in 2011 at the Ira Sohn Investment conference.

FACEBOOK

The first well-known fund to disclose a significant position in Facebook in the period was Chase Coleman’s Tiger Global Management with 1.96 million shares. The hedge fund was a pre-IPO investor in the social networking company.

Soros made good money on Wal-Mart as shares gained nicely since end of June. I think the big money was made, however, so don't get too excited as the Wal-Mart indicator says major rally in risk assets is underway as Euro shorts capitulate.

As far as Facebook, Soros, Tiger, SAC and Moore are holders. And while now might be a good time to dip your toes in some of these social media stocks that have been scorched, I remain cautious. Stocks like Facebook (FB), Zynga (ZNGA), and Goupon (GRPN) are on my radar after getting wiped but my favorite in this space remains LinkedIn (LNKD) because it serves a real purpose and people on it have money!

But the most important information I read from the article above is that top hedge funds are betting on a revival of the housing market and going long financials, energy and tech shares. This is extremely bullish for overall market in general and risk assets in particular.

In my own research, I can also tell you that top funds like Renaissance Technologies initiated new positions in coal companies Arch Coal (ACI) and Peabody (BTU). May be too early but keep coal on your radar too as interest is coming back in sector (add to positions whenever coal dips!).

I will take the weekend to cover in-depth activity of top funds, similar to what I did back in May when I went over Q1 activity. This is time consuming work and the truth is I need an army of quants (or one damn great programmer) to go over these filings, properly tracking where funds initiated new positions or added to shares of stocks that dipped hard (that's when it goes on my radar). As always, your financial contribution to this blog is much appreciated!

Below, Bloomberg's Deirdre Bolton reports that billionaire George Soros plans to marry Tamiko Bolton next year in Southampton, New York. Soros announced his engagement to family and friends gathered at his house in Southampton on Long Island this weekend. The marriage will be Bolton's second and the third for Soros (view engagement photos here).

Good for him, I'd say that's the best move I've seen from any hedge fund manager in a long time. My 80-year old father, a practicing psychiatrist, was less impressed, fearing this may be early signs of dementia. All cynicism aside, congratulations Mr. Soros, wish you and your soon-to-be bride many years of health and happiness!

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