Sunday, November 18, 2012

Ultimate 13F Guide: Q3 2012

It's time for another quarterly sneak peek into what top funds were buying and selling last quarter. Inspired by Georges St-Pierre's victory over Carlos Condit at UFC 154, reclaiming the welterweight championship in Montreal last night, I decided to rename this comment the Ultimate 13F Guide.

Before proceeding to my comment below, you may want to refer back to my last quarterly comment, Tracking Top Funds Activity: Q2 2012. In that comment, explain how I use this information to be a better trader/ investor. The key thing to remember is there is a 45 day lag in the data, so what you want to pay attention to is funds adding to positions that are going against them or initiated new positions in stocks that got hammered last quarter.

Once again, never buy and sell anything because Soros, Cohen, Griffin, Einhorn, or Tepper did so. Never chase Chase Coleman or other big, swinging hedge fund dicks. Don't pretend to be a trader or money manager. You might think you're a martial artist because you're watching UFC on television but you'd never get into the octagon with these killers. You'd never make it out alive.

The same goes for your money. If you casually and foolishly try to follow these hedge fund sharks, you'll quickly be knocked out and may never recoup your losses. Moreover, as you will see below, some of the very best funds are struggling to make money. Only the very best survive and thrive in this environment.

Investors looking for more information on quarterly activity of hedge funds should sign up with market folly. There are other sites too. Insider Monkey does a good job tracking 13F filings of top hedge funds and Whale Wisdom provides a heat map every quarter which changes as filings are disclosed. Bloomberg and Reuters also cover 13F filings in detail. You can read Bloomberg's 13F articles here and Reuter's 13F articles here.

Lay of Hedge Fund Land

We begin by getting the lay of Hedge Fund land. FINalternatives reports, Big Hedge Funds See Disparate Returns In Oct., '12:
Returns at some of the world's most prominent hedge funds proved highly mixed in October.

While Pine River Capital Management continued to enjoy top-notch returns going into the final two months of the year and JAT Capital Management continued to struggle mightily, Bridgewater Associates and Moore Capital Management remained mired in mediocrity, or, in the case of Bridgewater, the world's largest hedge fund, something slightly worse than mediocrity.

First, the winners: Pine River's flagship fund is up 19% this year after rising 2% last month, Bloomberg News reports. Its $3.5 billion Fixed-Income Fund is doing even better, adding 3.2% in October and 33% on the year.

New Mountain Vantage Advisers is also ahead of the pack, up 11% on the year after a 1.4% jump last month.

Next, the losers: JAT remains among year's biggest, losing 3.6% in October to both sap the 5.8% it had gained in the previous three months and to leave it down 19% with just November and December to make up the difference.
Portland-based Common Sense Investment Management doesn't face nearly so steep a climb, but is still down. Its Special Opportunity fund of hedge funds lost 2.4% last month and is down 4.2% on the year, while its Partners fund of funds lost 1% in October and 3.8% on the year.

On the bright side for Common Sense, despite a 2.6% drop last month, its Portable Alpha strategy is up 13% on the year.

Finally, the big boys: Bridgewater's Pure Alpha II is in danger of ending the year in the red if it stumbles over the next two months. The fund lost 0.8% in October, leaving it up just 0.3% on the year. Moore, on the other hand, had an up-and-down month, its flagship Global Investments falling 0.1% while its Macro Managers fund jumped 1.2%. The former is up 4.2% in 2012 and the latter 3.8%
Despite some paltry gains, investors put more cash into hedge funds in October. Not surprisingly, the hedge fund industry's biggest winners attracted the most money.

I have covered why macro funds are struggling to bring home the bacon. Bridgewater remains the "king of hedge funds," but it's becoming increasingly more difficult for them to live up to expectations. Ray Dalio may have mastered the machine but his "pure alpha" and "all-weather" funds are far from invincible. I've already warned investors not to lose their Bridgewater mind.

What macro funds like Bridgewater are still struggling with is whether we're entering a dangerous dynamic or another buying opportunity. This remains the single biggest theme all investors are struggling with. Will the eurozone implode? Will the fiscal cliff bring about another recession? Will China face a hard landing? Will Japan face its own debt crisis?

Interestingly, hedge fund manager Kyle Bass, who made $500 million shorting subprime mortgages during the 2007 crash, told Bloomberg he’s now betting half his firm’s money on a rebound in those assets but steering clear of Europe:
Securities tied to the riskiest mortgages are virtually “bullet-proof,” because even if the U.S. housing market declines by 10 percent, investors won’t take a principal hit on their bonds, Bass said in an interview with Bloomberg Televison’s Stephanie Ruhle on Market Makers. The assets offer a “very safe place” to make double-digit returns, he said.

“We have more than half our money in subprime bonds,” Bass said. “You don’t like a pair of jeans at 200 bucks, but when they go on sale for $25 you look great in them.”

Bass’s Hayman Capital Management LP is boosting its investments in mortgages as the assets produce the hedge-fund industry’s best returns. Firms focused on the market have gained 19 percent this year, compared with the industry’s average gain of 1.1 percent, according to data compiled by Bloomberg.

Mortgage funds have outperformed as the U.S. housing market rebounds, homeowner refinancing remains constrained and the U.S. Federal Reserve buys government-backed debt to try to stimulate the economy. Dallas-based Hayman, which Bass founded in 2005, managed $1 billion at the end of September, according to a firm presentation obtained by Bloomberg News.
‘Best Investments’

Bass said his bullish bets are focused on the top tranches of mortgage securities, which would have to endure a “draconian scenario” of homeowners not meeting their payments before bond investors would be hurt. The assets are the “best investment” at a time when U.S. Treasuries provide no yield, he said.

Bass’s main fund, the Hayman Capital Master Fund, gained 11 percent this year through September, according to the presentation. He started raising money for a new fund focused on residential-mortgage-backed securities earlier this year, two people familiar with the matter said in February.

The European sovereign debt crisis and the so-called fiscal cliff in the U.S. have made the current environment “the hardest period of time to invest in our generation,” Bass said. The fiscal cliff refers to automatic tax increases and budget cuts that will start next year unless President Barack Obama and Congress reach a compromise to reduce spending.

While investors have become less concerned about Europe, Bass said it’s too early to pour money into the region. Yields on bonds issued by indebted nations including Spain and Portugal have fallen since European Central Bank President Mario Draghi pledged July 26 to defend the euro currency bloc at all costs.
Germany’s Plight

Hedge funds buying assets in Europe “might be picking up a dime in front of a bulldozer,” because they will be crushed if the region falls apart, Bass said. Germany is more likely to exit the euro in the next four years than Greece, which faces mounting debts and is struggling repay bailout funds, he added.

Bass compared the predicament facing the stronger nations in the 17-member euro area to being forced to support struggling relatives.

“Let’s not even discuss relatives,” Bass said. “Let’s discuss 17 people that you might have been fighting with for 200 years.”
I happen to disagree with Bass on eurozone's 'imminent collapse'. As I showed you last week, smart and brave investors are bidding hard on risky European assets. Bass and other hedge funds smugly predicting eurozone's collapse will soon realize that Europe, and rest of the world, have no choice but to make this union work.

As far as his subprime bets, I would caution Bass and other structured credit hedge funds to enjoy the good times while they last. Talk about picking pennies in front of a bond bulldozer! Leo de Bever, CEO at AIMCo, was interviewed on BNN, warning investors of the risks in the bond market and illiquid alternatives (skip to parts 4 and 5).

I don't agree with everything Leo de Bever says as the battle over deflation has not killed bonds, and think that investors are underestimating risks of US credit markets and overestimating risks of European credit markets.

Metal to the 13F Pedal

Ok, enough of the macro background. It's critically important but you're all reading this comment because you want to know where famous gurus are placing their bets. You're all curious about what Soros, Buffet, and many other "gurus" are doing with their money.

First, Katya Wachtel and Svea Herbst-Bayliss and Aaron Pressman of Reuters report, Hedge funds shower love on Green Mountain, Yahoo:
Patrick McCormack, the manager of hedge fund Tiger Consumer Management, decided to bet against rival David Einhorn in the third quarter.

McCormack's $2 billion fund jumped into two stocks that Einhorn, founder of $8 billion Greenlight Capital Management and one of a handful of savvy traders who can move markets with his "short" calls, has said publicly he is shorting, or betting against.

Quarterly regulatory filings for Tiger Consumer show McCormack acquired a 280,000 share stake in Chipotle Mexican Grill Inc and increased his fund's stake in Green Mountain Coffee Roasters Inc by 500,000 shares to 1.5 million shares.

Einhorn, one of the $2 trillion hedge fund industry's most closely watched managers, has given presentations questioning the prospects for both Chipotle and Green Mountain Coffee.

Also taking the opposite side of Einhorn on Green Mountain is Dinakar Singh, whose $4 billion TPG-Axon Capital Management opened a 2.5 million share stake in Green Mountain Coffee.

Tiger Consumer and TPG-Axon disclosed their recent moves in so-called 13-F filings, which all large money managers are required to file with the U.S. Securities and Exchange Commission after the close of each quarter.

John Paulson's Paulson & Co had not released its filing one hour after the SEC's customary deadline. The SEC did say that certain funds affected by Superstorm Sandy could ask for an extension to file. Spokespeople for Paulson did not immediately return emails or calls asking for comment.

The filings give a glimpse into the thinking and strategies of managers and, in this case, indicate that while Einhorn is bearish on the two stocks, McCormack is more bullish.

Other filings reveal that $6 billion Tiger Global Management made a big bet on Yahoo Inc by opening a 25 million share position in the internet company, and Philippe Laffont's $3.5 billion Coatue Management acquired 1.4 million shares in social networking company Facebook Inc.

Viking Global Management also took a recent liking to Facebook, a sign that the company's shares may have fallen so much that managers are seeing value in the stock.

Einhorn, meanwhile, went wild over Yahoo, taking a 5 million share stake in the company.

Overall, the third quarter was a good one for U.S. stocks and hedge funds, with the benchmark S&P 500 rising 5.76 percent and the average hedge fund gaining 3 percent. By contrast, stocks have retreated mightily so far in the fourth quarter, with the S&P 500 falling 5 percent as of November 13.

Since 13-F filings are released roughly 45 days after the end of quarter, it is important to note that what might have appeared as profitable bets by a manager in the third quarter might not be so smart right now in light of the recent market reaction.

Much of the selling in stocks right now is a response to concern about whether a newly re-elected President Obama and a Republican-controlled House of Representatives will be able to reach an agreement to deal with expiring income tax cuts and large pre-planned spending cuts.

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

CONSUMER

Yale University's $19.3 billion endowment acquired 133,000 shares of children's clothing company Carter's Inc. Tiger Consumer added about 500,000 shares to its stake in Monster Beverage Corp, whose stock dropped 24 percent in the third quarter.

TPG-Axon opened a new 1.2 million stake retail chain Dollar General Corp.

Third Point opened a 5 million share position in Kraft Foods Group Inc.

FINANCIALS

Farallon Capital Management nearly doubled it position in credit card company Visa Inc to 1.17 million shares. Alyeska Capital raised it stake in Citigroup Inc to 943,000 shares from 181,400 shares.

Viking Global added a new position in Citigroup, buying nearly 2 million shares. Maverick Capital also jumped on the Citigroup bandwagon, nearly doubling its position to 5 million shares.

Appaloosa Management made lots of move in financials in the second quarter, opening an 8.25 million stake in American International Group Inc and opening a 2.4 million shares position in JPMorgan Chase & Co. Meanwhile, the David Tepper-led fund cut its position in Bank of America Corp by 1.1 million shares.

Billionaire investor George Soros' family office, Soros Fund Management, also opened a new position in AIG, adding 15 million shares, along with put options covering 250,000 shares. A put option allows a trader to sell a security at a specified price.

Soros also added new positions of 1.5 million shares in Citigroup.

HEALTHCARE

Greenlight Capital increased its stake in Aetna Inc to 4.4 million shares, up from 3.1 million at the end of the second quarter. At the same time, the Einhorn-led fund sold out its position in Wellpoint Inc.

Third Point, meanwhile, raised its stake in Wellpoint to 1.25 million shares from 850,000 in the second quarter. But the Dan Loeb hedge fund exited positions in Humana, Aetna and cut its stake in Cigna Inc nearly in half to 1.4 million shares.

Jana Partners opened a new stake in Aetna of 2.3 million shares.

HOUSING

Brigade Capital Management roughly doubled its stake in Beazer Homes USA Inc to 2.5 million shares, but eliminated its 500,000 share position in DR Horton Inc.

INTERNET

Tiger Global raised its stake in Facebook Inc to 11.7 million shares from 2 million shares at the end of the second quarter.

Viking Global Investors opened a 4.1 million position in Facebook.

MEDIA

TPG-Axon cut its largest holding, Sirius XM Radio Inc, by over 55 million shares and reducing its position to 31.8 million.

TECH

Eton Park Capital Management more than cut its stake in Apple Inc, reducing its holding to 250,000 shares.
Where else are hedge funds and other top funds placing big bets? Many hedge funds, led by Paulson, are betting big on Nexen, believing the Canadian government will approve the deal. Ontario Teachers' tripled its stake in Nexen, betting alongside many hedge funds they invest with (lesson for all large investors, get more timely disclosure on where your hedge funds are placing their big bets).

The Paulson Disadvantage Minus Fund also held on to a huge gold pile in Q3 but cut its holdings in Hartford Financial Services. Some "Tiger cubs" slashed their holdings of Ralph Lauren while others added. More specialized funds played the hot biotech sector in Q3.

As you can read from the article above, the world's hottest hedge fund has been buying Facebook and placing bets on Groupon (tread carefully).

David Tepper is making bullish bets on AIG and many other stocks:
Hedge fund billionaire David Tepper is one of the few investors that made money in both the market crash of 2009 and the recoveries in 2009. You would wonder how he can time the market.
One thing he does the best is to buy distressed debt/stocks when no one wants them. He has built a great record out of that and made himself multi-billionaire.
It makes us thinking when we observe that David Tepper make a lot buys than sells during the third quarter of 2012. He must be extremely bullish. Especially he bought into distressed financials like AIG, which is now his 4 th largest holding. He also bought financials such as JPMorgan ( JPM ), Morgan Stanly ( MS ) etc. He increased his position in cyclical such as MGM ( MGM ) and Ford ( F ). But he reduced his position in Bank of America ( BAC ).
As of 09/30/2012, David Tepper 's firm Appaloosa Management LP owns 52 stocks with a total value of $4 billion. These are the details of the buys and sells.
As you can see, Tepper and many other elite hedge funds are not concerned about the "end of the world." They're bullish on US financials, homebuilders, tech, and basic materials, betting on a global recovery.

I also noted that top macro funds, like Balyasny Asset Management, increased and/ or initiated new positions in US coal shares. Other hedge funds also jumped on the coal express. Will be interesting to see whether hedge funds added to their coal positions after Romney's loss (either way, I remain very bullish on coal and think top funds are loading up after the election on the latest coal correction).

I leave it up to you to explore the activity of top funds listed below. It's time consuming but you will learn a lot by going through their activity, focusing on where they added to existing holdings or initiated new positions. Use this information wisely and just remember, most of you are not money managers so don't pretend to be.

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. Below 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) HBK Investments

9) Highbridge Capital Management

10) Pentwater Capital Management

11) Och-Ziff Capital Management

12) Pine River Capital Capital Management

13) Carlson Capital Management

14) Mount Kellett Capital Management 

15) Whitebox Advisors

16) QVT Financial

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) Tiger Management (Julian Robertson)

7) Moore Capital Management

8) Balyasny Asset Management

Top Market Neutral, Quant and CTA 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. Market neutral funds will engage in pair trading to remove market beta.

1) Alyeska Investment Group

2) Renaissance Technologies

3) DE Shaw & Co.

4) Two Sigma Investments

5) Numeric Investors

6) Analytic Investors

7) Winton Capital Management

8) Graham Capital Management

9) SABA Capital Management

10) Quantitative Investment Management


Top Deep Value 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) Berkshire Hathaway

2) Fisher Asset Management

3) Baupost Group

4) Fairfax Financial Holdings

5) Gotham Asset Management

6) Sasco Capital

7) Schneider Capital Management

8) ValueAct Capital

9) Highfields Capital Management

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's Omega Advisors

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) Discovery Capital Management

20) Appaloosa Capital Management

21) LSV Asset Management

22) Hussman Strategic Advisors

23) TPG-Axon Management

24) Icahn Associates

25) Brookside Capital Management

26) Blue Ridge Capital

27) Iridian Asset Management

28) Eminence Capital

29) Clough Capital Partners

30) GLG Partners LP

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) T2 Partners Management

41) PAR Capital Capital Management

42) Gilder, Gagnon, Howe & Co

43) Brahman Capital

44) Bridger Management 

45) Kensico Capital Management

46) Kynikos Associates

47) Soroban Capital Partners

48) Passport Capital

49) Pennant Capital Management

50) Mason Capital Management

51) New Mountain Vantage  Advisers

52) SAB Capital Management

53) Sirios Capital Management 

54) Highside Capital Management

55) Tremblant Capital Group

56) Decade Capital Management

57) T. Boone Pickens BP Capital

58) New Mountain Vantage Advisers

59) Pointstate Capital Partners

60) Viking Global Investors

61) Vinik Asset Management


62) Zweig-Dimenna Associates

Top Sector and Specialized Funds

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

1) Cohen & Steers

2) Tiger Consumer Management

3) Orbimed Advisors

4) Deerfield Management

5) Sectoral Asset Management

6) Visium Asset Management

7) Bridger Capital Management

8) Southeastern Asset Management

9) Bridgeway Capital Management

10) Cardinal Capital Management

11) Munder Capital Management

12) Diamondhill 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) Brookfield Asset Management

7) Dodge & Cox

8) Eaton Vance Management

9) Grantham, Mayo, Van Otterloo & Co.

10) Geode Capital Management

11) Goldman Sachs Group

11) JP Morgan Chase & Co.

13) Morgan Stanley

14) Manulife Asset Management

15) RCM Capital Management

16) UBS Asset Management

17) Barclays Global Investor

18) Epoch Investment Partners

19) Thornburg Investment Management

20) Legg Mason Capital Management

21) Batterymarch Financial Management

22) Tocqueville Asset Management

23) Neuberger Berman

24) Winslow Capital Management

25) Herndon Capital Management

26) Great West Life Insurance 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 pension and endowment funds I track closely:

1) Alberta Investment Management Corporation (AIMco)

2) Ontario Teachers' Pension Plan

3) Canada Pension Plan Investment Board

4) Caisse de dépôt et placement du Québec

5) OMERS Administration Corp.

6) British Columbia Investment Management Corporation (bcIMC)

7) Public Sector Pension Investment Board (PSP Investments)

8) PGGM Investments

9) APG All Pensions Group

10) California Public Employees Retirement System (CalPERS)

11) California State Teachers Retirement System (CalSTRS)

12) New York State Common Fund

13) New York State Teachers Retirement System

14) State Board of Administration of Florida Retirement System

15) State of Wisconsin Investment Board

16) State of New Jersey Common Pension Fund

17) Public Employees Retirement System of Ohio

18) STRS Ohio

19) Teacher Retirement System of Texas

20) Virginia Retirement Systems

21) TIAA CREF investment Management

22) Harvard Management Co.

23) Norges Bank

24) Nordea Investment Management

25) Korea Investment Corp.

26) Singapore Temasek Holdings 

27) Yale Endowment Fund

Hope you enjoyed this comment. Investors looking for more in-depth coverage of 13F filings should contact me directly (LKolivakis@gmail.com) and we can discuss contractual work where I will partner up with an excellent quant to cover these filings and how you should play them.

Once again, please show your support by donating any amount or through a monthly subscription to this blog (top right hand side). You simply won't find any other blog that covers as much information in such depth and breadth, tying the macro and micro all together.

Below, Bloomberg's Dominic Chu reveals some surprises found in the 13F filings of Warren Bufett, David Einhorn and John Paulson. He speaks on Bloomberg Television's "Money Moves."

Second, Troy Gayeski, SkyBridge senior portfolio manager, discusses hedge funds looking past Europe's economic woes and moving bank into European banks. He speaks on Bloomberg Television's "Money Moves."

Third, Su Keenan reports on hedge funds returning money to clients and closing operations. On this topic, Libra Advisors LLC, a $2 billion hedge-fund firm, plans to return outside investors’ money, citing difficult markets made riskier by “unconventional monetary policies.”

And John W. Henry, one of the founding fathers of managed futures and the systematic trend following approach to trading futures, will stop managing customer funds at the end of this year. The company became too small to sustain itself.

Finally, Kyle Bass, chief managing partner and principal of Hayman Capital Management LP, talks about his firm's investment strategy, U.S. fiscal policy and Europe's debt crisis. He speaks with Stephanie Ruhle on Bloomberg.