Friday, November 16, 2018

Top Funds' Activity in Q3 2018

Arie Shapiro reports, Which Hedge Funds Got ‘Whale Rocked’ in October?:
Today is the deadline for 13Fs, where funds of all kinds will disclose what stocks they bought and which ones they sold in the third quarter.

But this filing period is a bit different than others because the quarter ended just days before a rout in the market began: The Nasdaq plunged 9.2% in October, its largest monthly decline since November 2008, while the S&P 500 fell almost 7%.

And volatility hasn’t subsided since -- Just look at what happened in the e-minis overnight (rallying 16 points last night only to reverse by ~33 handles, and now practically flat) or what’s been going in crude oil over the past month and a half, with WTI seeing virtually zero upticks in a straight slide from $77 to $55 per barrel.


So what we may get is a proper look at who piled into some of the biggest pressure points of the market during the meltdown, for example the breakdown in the tech sector. What we won’t get is a more up-to-date view on who panic sold and/or who doubled and tripled down as the selloff deepened. That’ll have to wait until the next 13F season -- unless the investor letters leak before then, of course.

We’ve received some insight into the October carnage from several TMT-heavy hedge funds, like Whale Rock, the $3 billion firm run by former Fidelity portfolio manager Alex Sacerdote, which saw its flagship fund plummet 11% during the month; meanwhile, the master fund at Light Street Capital, Glen Kacher’s $1.4 billion firm, fell more than 9%.

See the graphic below for a look at Whale Rock’s top holdings by market value as of June 30, which can be viewed via the FLNG function; the positions will be updated later today when the new 13F gets filed.

As you can see, three of the FAANGs topped the list (Amazon was 8.6% of the fund’s portfolio followed by Netflix 7.5% and Facebook 6.5%) while the rest of the top ten was littered with tech momentum names like Shopify, MongoDB, Nvidia, and Square, all of which are down many percentage points since the end of the third quarter.


I’ll be screening for which other funds potentially got "Whale Rocked," which is a completely made-up term by me in a bid to understand who else may have gotten wrecked when tech turned south. Of course, this non-trademarked term only works well in the context of one month’s performance, as Whale Rock was still up for the year through October (up 4.7% vs S&P 500 up 1.4%), according to an investor document viewed by Bloomberg.

The keys will be to check who took a fat new stake or boosted their positions in some of the momentum names in the tech sector, many of which tend to be hedge fund hotels. On the flip side, I’ll also be curious to see who exited their positions in the worst-performing sectors (tech & communication services, consumer discretionary, energy and industrials) and rotated into more defensive ones like the utilities, consumer staples, or REITs, all of which outperformed since the end of the third quarter, as the graphic below shows.


13F Cheat Sheet

Here’s a list of names to watch with their respective share move quarter-to-date:
  • Recent downward spirals: General Electric -24% (13F yesterday showed Bridgewater’s top new buy in the third quarter was GE with ~2 million shares), Goldman Sachs -8.6%
  • The FAANGs: Netflix -21%, Amazon -19%, Apple -15%, Facebook -14%, Alphabet -13%
  • Other megacap tech names: IBM -21%, Baidu -20%, Salesforce -17%, Texas Instruments -12%, Alibaba -11%
  • Momentum: Roku -42%, GrubHub -38%, AMD -37%, World Wrestling -31%, Nvidia -29%, Match -28%, Spotify -27%, Square -27%, Snap -21%, Micron -16%, Shopify -16%
  • Video games: Activision -37%, Electronic Arts -27%, Take-Two -22%
  • Housing-related: Zillow -31%, Mohawk -30%, D.R. Horton -18, Lowe’s -17%, Masco -15%, Home Depot -14%, Lennar -12%
  • Energy: Baker Hughes -30%, Marathon Oil -29%, Valero Energy -27%, Apache -26%, USO -25%, XLE -13%
  • California utilities after the wildfires: PG&E -29% (13F out last night showed Baupost boosted their stake in the third quarter by 322%, or 14.5 million shares) and Edison International -18%
  • Pot stocks: Aurora Cannabis -30%, Cronos -25%, Tilray -22%, Canopy Growth -21%
  • And what went up? Tesla +28%, Red Hat +27% (bailed out by the IBM deal!), TripAdvisor +24%, Starbucks +19%, Twitter +14%. Walgreens +12%, Procter & Gamble +12%, McDonald’s +10%, CME Group +10%

It's that time of the year again when people get a sneak peek into what top funds bought and sold during the last quarter with a 45-day lag.

Before you get all excited, I warn you, many top funds got dinged in Q3 and many are still getting clobbered in Q4.

These are brutal, BRUTAL markets as the rise in rates is starting to take a bite out of stocks and volatility is on the rise. If you didn't read the macro environment right, you got killed picking stocks over the last six months.

For example, while the great money manager Stanley Druckenmiller (see interview at end of comment) was surprised big pharmaceutical shares took off in Q2 and have done well, I wasn't because it's all part of my macro thesis which I laid out at the beginning of year, namely, return to stability. And since the summer, I told my readers to get defensive and stay defensive.

What else did I notice? The ferocity of the moves lately is unbelievable which makes it very tough for large funds to trade in this environment. Large cap stocks are swinging like small cap stocks, it's crazy out there and I know, I'm on markets every single day looking at these wild gyrations.

Let's begin analyzing what top funds bought and sold in Q3 with some more articles. Svea Herbst-Bayliss and David Randall of Reuters report, Prominent managers loaded up on Apple before recent tumble:
Several prominent investors put fresh money to work in Apple (AAPL) during the third quarter even as they sold out of other high-flying tech companies, betting the iPhone maker’s stock would keep rising as strong growth overshadowed rising trade tensions between the United States and China.

The purchases, which were revealed in securities filings on Wednesday, may be leaving large investors with steep losses if Apple continues its more than 15 percent decline for the month so far.

Mutual fund giant Fidelity added 7 million shares, bringing its total holdings to 110.9 million shares, regulatory filings and data from research firm Symmetric.io show. Janus Henderson Group added 3.3 million shares for a total of 20.8 million shares and J.P. Morgan Chase & Co boosted its holding to 42.7 million shares after adding 1.3 million.

Philippe Laffont’s Coatue Management made a big bet by raising his exposure by 938 percent to 884,321 shares while Chase Coleman’s Tiger Global Management put on a new position to own just over 1 million shares.

Despite the steep declines in Apple, some hedge fund managers said that they are continuing to add to shares in the company.

“We know it is not a Facebook or a Google with eye-popping growth but we’re not paying for that,” said Shawn Kravetz, founder of Esplanade Capital, at the Reuters Global Investment 2019 Outlook Summit in New York on Wednesday.

Kravetz, who added to his Apple position Wednesday morning, said investors like himself are attracted to the company’s compelling valuation compared to other Silicon Valley giants.

The declines in Apple may add to what is proving to be another difficult year for the hedge fund industry.

Overall, the average hedge fund dropped nearly 3 percent in October, the worst monthly loss since 2011, in large part due to over-exposures to the technology industry, according to Hedge Fund Research.

Given the increased volatility in the U.S. stock market, defensive-minded funds will likely post the strongest returns through the end of the calendar year, said Kenneth Heinz, president of HFR.

“Anticipating the market volatility which began in September and accelerated in October will continue into 2019, strategies positioned for this transitional market environment are likely to lead performance through year end,” he said.

Quarterly disclosures of hedge fund managers’ stock holdings in 13F filings with the U.S. Securities and Exchange Commission are one of the few public ways of tracking what the managers are selling and buying. But relying on the filings to develop an investment strategy comes with some risk because the disclosures are made 45 days after the end of each quarter and may not reflect current positions.

The moves into the shares of Apple came at a time when several prominent hedge funds were starting to shed their holdings of the FANG stocks - Facebook Inc (FB), Amazon.com Inc (AMZN), Netflix Inc (NFLX), and Google’s parent Alphabet Inc (GOOGL) - that had led the market higher over the last two years.

Jana Partners, for instance, sold all of its approximately 651,000 shares of Facebook and all of its approximately 44,000 shares of Alphabet Inc in the third quarter, according to securities filings. Third Point LLC sold all of its approximately 3 million shares of Facebook, a position which had made up about 4 percent of its prior portfolio.

Los Angeles-based asset manager TCW Group Inc sold all of its approximately 127,000 shares of Netflix during the same time period.
So you read this and you notice a few things. Big hedge funds play big tech stocks because they need the liquidity to manage their risk and get in and out efficiently with few transaction costs.

The focus is always on FANG stocks. Reading this article, I can tell you Jana Partners and Third Point did a wise move shedding Facebook (FB) last quarter (click on image):


As far as Coatue Management and Tiger Global, they added to Apple (AAPL) and the stock did fine in Q3 before getting clobbered during the nasty October selloff, the worst October since 2008 (click on image):


Now, a lot of people ask me what do I think of Apple shares now? You need to start following me on StockTwits where I post some of my ideas on stocks and sectors.

On Apple, I said as long as it holds above its 50-week moving average, I'd be long despite the October selloff and negative weekly MACD (click on image):


I don't care if it's Warren Buffett's top position, I don't care if the company will stop reporting unit sales (everyone knows they've been falling and will continue to fall), all I care about is that weekly chart above and it helps knowing they have more cash than they know what to do with, so expect buybacks to continue lending support to shares (not that I really put too much credence to the buyback bull).

Still, I expect a slowing global economy next year with high possibility of a recession, so it's hard for me to be all excited about Apple from a fundamental point but if you notice, the company is moving aggressively into entertainment and other financial ventures which is positive.

All this to say, if I had a choice between owning Apple or Facebook here, I'd follow the Oracle of Omaha into Apple, no doubt about it (I never liked Facebook, I personally think it's a waste of time and it's definitely not a well-run company).

But the point of these quarterly comments on top funds' activity is to show my readers there's so much more to this market than FANG stocks or high-flying tech stocks like NVDIA (NVDA) which got killed on Friday (click on image):


On  StockTwits, told my followers, don't bother trying to play this chip stock on the long side, it broke below its 100-week moving average and the weekly MACD is negative, telling me even if there's a bounce, it's headed much lower.

In general, I don't like semiconductor shares (SMH) here given my macro views that the US and global economy are slowing (click on image):


But it's a bit of crazy market and while some risk assets are getting clobbered, others might come back.

Earlier this week, I told my followers on StockTwits to pay attention to biotech shares (XBI) which got clobbered as rates rose and were at an important support level (click on image):


It’s still very weak and I'd be very careful here but you see how it bounced off its 200-week moving average? In the past, biotech shares came roaring back after such a selloff but the rise in rates is removing a lot of liquidity in markets.

Still, on Friday, biotech shares (XBI) rallied 2.5%  that's all it took to ignite many of the smaller biotech shares I track.


You'll notice shares of Tesaro (TSRO) rallied 32% on rumors of a buyout but the stock has punished investors over the last two years (click on image):


I noticed Joseph Edelman's Perceptive Advisors, one of the best biotech funds, took a small position in this one as it got killed in Q3 but I don't know what to make of today's big pop.

Perceptive Advisors also added big to shares of Arena Pharmaceuticals (ARNA) in Q3 and the company's stock had a spectacular week.

Perceptive also made big money buying the dip in Solid Biosciences (SLDB) this year and added to its position in La Jolla Pharmaceuticals (LJPC) as shares declined in Q3. You can view Perceptive's top holdings here but be warned, biotech isn't for the faint of heart.

Anyway, I can literally ramble on for days about what top funds bought and sold but I will spare you the details. Zero Hedge did a good job going over 13-F summary here.

As always, take this stuff with a grain of salt and remember, even the "gurus" get it wrong, just ask Seth Klarman and others who got scorched this week on their PG&E (PCG) positions. Shares of that utility rallied 37% Friday but the damage is done (click on image):


I'll end it there. Have fun looking at the third quarter activity of top funds listed below. The links take you straight to their top holdings and then click on the fourth column head, % chg, to see where they decreased (click once on % chg column head) and increased their holdings (click twice on % chg column head).

Top multi-strategy and event driven 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, merger arbitrage, distressed debt 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) Appaloosa LP

2) Citadel Advisors

3) Balyasny Asset Management

4) Farallon Capital Management

5) Peak6 Investments

6) Kingdon Capital Management

7) Millennium Management

8) Eton Park Capital Management

9) HBK Investments

10) Highbridge Capital Management

11) Highland Capital Management

12) Pentwater Capital Management

13) Och-Ziff Capital Management

14) Pine River Capital Capital Management

15) Carlson Capital Management

16) Magnetar Capital

17) Mount Kellett Capital Management 

18) Whitebox Advisors

19) QVT Financial 

20) Paloma Partners

21) Weiss Multi-Strategy Advisors

22) York Capital Management

Top Global Macro Hedge Funds and Family Offices

These hedge funds gained notoriety because of George Soros, arguably the best and most famous hedge fund manager. Global macros typically invest across fixed income, currency, commodity and equity markets.

George Soros, Carl Icahn, Stanley Druckenmiller, Julian Robertson and now Steve Cohen have converted their hedge funds into family offices to manage their own money and basically only answer to themselves (that is my definition of true investment success).

1) Soros Fund Management

2) Icahn Associates

3) Duquesne Family Office (Stanley Druckenmiller)

4) Bridgewater Associates

5) Pointstate Capital Partners 

6) Caxton Associates (Bruce Kovner)

7) Tudor Investment Corporation (Paul Tudor Jones)

8) Tiger Management (Julian Robertson)

9) Discovery Capital Management (Rob Citrone)

10 Moore Capital Management

11) Point72 Asset Management (Steve Cohen)

12) Bill and Melinda Gates Foundation Trust (Michael Larson, the man behind Gates)

13) Joho Capital (Robert Karr, a super succesful Tiger Cub who shut his fund in 2014)

Top Quant and Market Neutral Hedge Funds

These funds use sophisticated mathematical algorithms to make their returns, typically using high-frequency models so they churn their portfolios often. A few of them have outstanding long-term track records and many believe quants are taking over the world. 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) Cubist Systematic Strategies (a quant division of Point72)

6) Numeric Investors

7) Analytic Investors

8) AQR Capital Management

9) SABA Capital Management

10) Quantitative Investment Management

11) Oxford Asset Management

12) PDT Partners

13) Princeton Alpha Management

14) Angelo Gordon

15) Quantitative Systematic Strategies

16) Bayesian Capital Management

17) Quadrature Capital

Top Deep Value,
Activist, Event Driven and Distressed Debt Funds

These are among the top long-only funds that everyone tracks. They include funds run by legendary investors like Warren Buffet, Seth Klarman, Ron Baron and Ken Fisher. Activist investors like to make investments in companies where management lacks the proper incentives to maximize shareholder value. They differ from traditional L/S hedge funds by having a more concentrated portfolio. Distressed debt funds typically invest in debt of a company but sometimes take equity positions.

1) Abrams Capital Management (the one-man wealth machine)

2) Berkshire Hathaway

3) Baron Partners Fund (click here to view other Baron funds)

4) BHR Capital

5) Fisher Asset Management

6) Baupost Group

7) Fairfax Financial Holdings

8) Fairholme Capital

9) Trian Fund Management

10) Gotham Asset Management

11) Fir Tree Partners

12) Elliott Associates

13) Jana Partners

14) Gabelli Funds

15) Highfields Capital Management 

16) Eminence Capital

17) Pershing Square Capital Management

18) New Mountain Vantage  Advisers

19) Atlantic Investment Management

20) Scout Capital Management

21) Third Point

22) Marcato Capital Management

23) Glenview Capital Management

24) Apollo Management

25) Avenue Capital

26) Armistice Capital

27) Blue Harbor Group

28) Brigade Capital Management

29) Caspian Capital

30) Kerrisdale Advisers

31) Knighthead Capital Management

32) Relational Investors

33) Roystone Capital Management

34) Scopia Capital Management

35) Schneider Capital Management

36) ValueAct Capital

37) Vulcan Value Partners

38) Okumus Fund Management

39) Eagle Capital Management

40) Sasco Capital

41) Lyrical Asset Management

42) Gabelli Funds

43) Brave Warrior Advisors

44) Matrix Asset Advisors

45) Jet Capital

46) Conatus Capital Management

47) Starboard Value

48) Pzena Investment Management

49) Polaris 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) Adage Capital Management

2) Viking Global Investors

3) Greenlight Capital

4) Maverick Capital

5) Pointstate Capital Partners 

6) Marathon Asset Management

7) Tiger Global Management (Chase Coleman)

8) Coatue Management

9) Omega Advisors (Leon Cooperman)

10) Artis Capital Management

11) Fox Point Capital Management

12) Jabre Capital Partners

13) Lone Pine Capital

14) Paulson & Co.

15) Bronson Point Management

16) Hoplite Capital Management

17) LSV Asset Management

18) Hussman Strategic Advisors

19) Cantillon Capital Management

20) Brookside Capital Management

21) Blue Ridge Capital

22) Iridian Asset Management

23) Clough Capital Partners

24) GLG Partners LP

25) Cadence Capital Management

26) Karsh Capital Management

27) New Mountain Vantage

28) Penserra Capital Management

29) Eminence Capital

30) Steadfast Capital Management

31) Brookside Capital Management

32) PAR Capital Capital Management

33) Gilder, Gagnon, Howe & Co

34) Brahman Capital

35) Bridger Management 

36) Kensico Capital Management

37) Kynikos Associates

38) Soroban Capital Partners

39) Passport Capital

40) Pennant Capital Management

41) Mason Capital Management

42) Tide Point Capital Management

43) Sirios Capital Management 

44) Hayman Capital Management

45) Highside Capital Management

46) Tremblant Capital Group

47) Decade Capital Management

48) T. Boone Pickens BP Capital 

49) Bloom Tree Partners

50) Cadian Capital Management

51) Matrix Capital Management

52) Senvest Partners


53) Falcon Edge Capital Management

54) Park West Asset Management

55) Melvin Capital Partners

56) Owl Creek Asset Management

57) Portolan Capital Management

58) Proxima Capital Management

59) Tourbillon Capital Partners

60) Impala Asset Management

61) Valinor Management

62) Marshall Wace

63) Light Street Capital Management

64) Honeycomb Asset Management

65) Rock Springs Capital Management

66) Rubric Capital Management

67) Whale Rock Capital

68) Suvretta Capital Management

69) York Capital Management

70) Zweig-Dimenna Associates

Top Sector and Specialized Funds

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

1) Armistice Capital

2) Baker Brothers Advisors

3) Palo Alto Investors

4) Broadfin Capital

5) Healthcor Management

6) Orbimed Advisors

7) Deerfield Management

8) BB Biotech AG

9) Birchview Capital

10) Ghost Tree Capital

11) Sectoral Asset Management

12) Oracle Investment Management

13) Perceptive Advisors

14) Consonance Capital Management

15) Camber Capital Management

16) Redmile Group

17) RTW Investments

18) Bridger Capital Management

19) Boxer Capital

20) Bridgeway Capital Management

21) Cohen & Steers

22) Cardinal Capital Management

23) Munder Capital Management

24) Diamondhill Capital Management 

25) Cortina Asset Management

26) Geneva Capital Management

27) Criterion Capital Management

28) Daruma Capital Management

29) 12 West Capital Management

30) RA Capital Management

31) Sarissa Capital Management

32) Rock Springs Capital Management

33) Senzar Asset Management

34) Southeastern Asset Management

35) Sphera Funds

36) Tang Capital Management

37) Thomson Horstmann & Bryant

38) Venbio Select Advisors

39) Ecor1 Capital

40) Opaleye Management

41) NEA Management Company

42) Great Point Partners

43) Tekla Capital Management

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, are a few funds investors 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

12) 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 (Bill Miller)

21) Kornitzer Capital Management

22) Batterymarch Financial Management

23) Tocqueville Asset Management

24) Neuberger Berman

25) Winslow Capital Management

26) Herndon Capital Management

27) Artisan Partners

28) Great West Life Insurance Management

29) Lazard Asset Management 

30) Janus Capital Management

31) Franklin Resources

32) Capital Research Global Investors

33) T. Rowe Price

34) First Eagle Investment Management

35) Frontier Capital Management

36) Akre Capital Management

37) Brandywine Global

38) Brown Capital Management

39) Victory Capital Management

Canadian Asset Managers

Here are a few Canadian funds I track closely:

1) Addenda Capital

2) Letko, Brosseau and Associates

3) Fiera Capital Corporation

4) West Face Capital

5) Hexavest

6) 1832 Asset Management

7) Jarislowsky, Fraser

8) Connor, Clark & Lunn Investment Management

9) TD Asset Management

10) CIBC Asset Management

11) Beutel, Goodman & Co

12) Greystone Managed Investments

13) Mackenzie Financial Corporation

14) Great West Life Assurance Co

15) Guardian Capital

16) Scotia Capital

17) AGF Investments

18) Montrusco Bolton

19) CI Investments

20) Venator Capital Management

Pension Funds, Endowment Funds, and Sovereign Wealth Funds

Last but not least, I the track activity of some pension funds, endowment 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

Below, the latest round of 13F filings are in with a look at what the most high-profile hedge fund managers have been up to in the last quarter. Bloomberg's Peggy Collins reports on "Bloomberg Daybreak: Americas." (Source: Bloomberg)

More importantly, take the time to watch two great interviews with top macro managers. The first is a CNBC interview with Ray Dalio and the second is a Real Vision interview with Stanley Druckenmiller. I would watch both these clips twice, especially Druckenmiller's full interview (just awesome and even he got a lot of things wrong but he's ready to pounce when the next downturn strikes).



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