Tracking Top Funds Activity: Q2 2012

Earlier this week, wrote a comment on setting your sights on Soros where I briefly discussed what some top hedge funds bought and sold in Q2 2012. Will dedicate this weekend to take an in-depth look at how top funds positioned themselves during the second quarter.

Before I proceed, please remember the three sacred rules of 13-F filings:
  1. Never buy or sell any stock based solely on 13-F filings.
  2. Never buy or sell any stock based solely on 13-F filings.
  3. Never buy or sell any stock based solely on 13-F filings.
Got it? Good because if you don't adhere to these rules you will suffer enormous losses chasing the latest fad that some "guru" is supposedly buying. And yes, I am thinking of the Facebook (FB) IPO flop.

I cringe in horror when I read articles on how a dozen top hedge funds own Facebook. If that's the case, then they're getting burned badly along with millions of retail schmucks who thought they were going to become instant overnight millionaires (market has a knack for disappointing pigs!).

More likely, these hedge fund managers want you to think they're long Facebook when in reality they're shorting the shit out of it, profiting off the misfortune of those who bought the hype. Really? Yes! These guys aren't your friends; they're ruthless sharks who use the media to spread misinformation.

When the Facebook IPO came out, I went on CBC French television and told investors to wait for share price to fall below $20 to start speculating. I now regret not saying below $10 or just avoid it altogether. Was never a fan of this company, never understood their business model, and never bothered creating a FB account (apparently some people create 100 or more accounts, grossly inflating the true number of users).

Anyways, enough of Facebook. If you buy and hold it be prepared to suffer the consequences. The same goes for other social media darlings that flopped in record time after their IPOs. The lock-up effect won't be kind to these companies but if you're willing to speculate, keep an eye on them (good to trade them).

Before I get into top funds activity, please read Michael Gayed's latest, Summer Surprise Melt-Up breaks Dividendsanity. Michael argues that we may be in the midst of a far more meaningful change in risk sentiment.

I agree, the risk rally is just getting started, which means money may soon begin to chase stocks, scared that it was wrong over the end of the world trade.

This is the theme which I believe elite hedge funds are playing right now. Everyone from Steve Cohen, to Ken Griffin, to Jim Simons and George Soros, are all well positioned to capitalize on this shift in sentiment.

Could be wrong but after taking a closer look at where they're putting their money at work (words are useless!) and more importantly, watching price action on risk assets, something tells me that a lot of funds will be chasing high beta stocks going into year-end.

Below, will go over activity of top funds. Please refer to my previous comment tracking Q1 activity. Have added a few funds and will likely add more just to give you a flavor of what various top funds bought and sold, where they made and lost money, and more importantly, where they added to positions and where they initiated new positions.

Will tell you what I look for. I like seeing funds add significantly to positions that went against them or initiate new positions on stocks that got creamed. That's when I add stocks on my radar and track them closely.

But will also share some money management wisdom with you. These are brutal markets which humble even the most experienced "gurus". Most of the time, you're better off focusing your attention on stocks making 52-week highs, ignoring what Soros et al. bought last quarter.

In fact, this is where we'll begin as elite funds own positions in stocks below, all making 52-week highs (click on image to enlarge):

You will see Apple (AAPL), Exxon Mobil (XOM) and Home Depot (HD) are making new highs. Moreover, Seagate Technologies (STX) is the top performing Nasdaq stock over past year and many top hedge funds own it.

I took a look at top holders of ANN Inc. (ANN), a retailer of women's apparel, and noticed a couple top hedge funds -- SAB Capital and Renaissance Technologies (RenTech) -- significantly increased their holdings in Q2, 2012. You can view the data here.

Shares of ANN Inc. popped 20% on Friday as quarterly profits topped estimates. Assuming SAB Capital and RenTech held or added to their position since end of Q2, they made a killing. Just check out the chart below (click on image to enlarge):

Tell ya, never bet against women, they love shopping! These type of returns will make Mark Zuckerberg and his FB pals green with envy but don't bother chasing the stock higher, let it settle down a little before initiating or adding to an existing position (never chase pops, especially after earnings!).

Back to SAB Capital. I took an in-depth look at their top dollar-weighted holdings below (click on image to enlarge):

Here's what I like about SAB Capital (not to be confused with their much larger rival, SAC Capital). From the $770 million in their equity portfolio, they only have 17 total positions and take concentrated positions on a handful of stocks. This could go against them but it shows me they have conviction and aren't afraid to take concentrated risk.

Also noticed SAB Capital initiated new positions in Oak Tree Capital (OAK) and KKR & Co. (KKR), dipping their toe into private equity firms that will benefit from European distressed debt. May be early but this is a smart move, especially for investors that can't directly invest into these PE giants.

The point is that very best funds aren't afraid to take concentrated risk and they know how to manage risk when things go against them. They don't chase fads, they don't get excited, they ignore the noise and focus all their attention on taking intelligent, opportunistic risk.

Below, I list many top funds whose activity I track closely. Please familiarize yourself with the Nasdaq buttons below (click on image).

The default setting is on 'total positions' on the green tabs but you can also check out new, increased, decreased, activity and sold out tabs. From there, I also click twice on 'value of shares' to get the dollar-weighted positions in descending order.

For example, below I show you the dollar-weighted 'increased' holdings of Citadel Advisors for Q2, 2012 (click on image to enlarge):

Just like Soros, they bought Wal-Mart (WMT) and made excellent money as shares rose nicely since end of Q2 (and you think these elite hedge fund managers don't talk to each other about common trades? Yeah right!).

But don't go chasing Wal-Mart shares either. That trade is over. Instead focus your attention on some other companies that Citadel increased positions in that haven't taken off yet, but the problem is most of these companies have taken off since end of Q2.

In fact, many of the companies above are making new highs. You need an army of quants to carefully sift through the holdings of all the funds below to determine where they're adding to existing positions, initiating new positions and whether or not it makes sense to follow them given price action since end of last quarter.

Again, remember my three simple rules at the top of this post regarding 13-F filings. Never buy or sell any stock based on this information but use it to understand how the very best managers positioned themselves to make money when others were (and still are) worried the world is coming to an end.

Speaking of world coming to an end, even Kynikos Associates, a well known hedge fund run by famous short-seller Jim Chanos, increased its bullish bets last quarter, buying S&P index, financials like Citigroup and JP Morgan and tech shares of Amazon and Oracle (click on image below):

Also note no two hedge funds are exactly alike. Some like SAC Capital and Renaissance Technologies will churn their portfolios several times a quarter. Not as bad now that they manage several billions but they trade a lot. Others trade very infrequently and hold through tough times.

Even mutual funds like Fidelity trade a lot and they're much more important at the margin for influencing price of any stock (when they dump shares, it's brutal). Just check out last quarter's activity of Alpha Natural Resources (ANR), a coal stock that got killed over past year (click on image):

Fidelity, Wellington, and Blackrock significantly decreased their positions while D.E. Shaw, a well known quantitative hedge fund, and other well known hedge funds increased their holdings of Alpha Natural Resources and other coal companies like Arch Coal, Peabody Energy and Walter Energy.

This actually makes me a bit nervous because same thing happened with Patriot Coal before it went bankrupt (DE Shaw and these hedge funds might be shorting these coal companies) but I doubt these companies are at risk of bankruptcy any time soon.

And if you believe that coal is not going away and that the global economy isn't collapsing, now might be the time to follow some hedge funds and start dipping your toes into the coal sector and other sectors that got creamed over past year.

The same goes for individual stocks like Research in Motion (RIMM) or Nokia (NOK), both of which have slumped over past year. Pay attention to their price action and look into which funds increased their holdings.

Can tell you that both Citadel and Renaissance Technologies marginally increased their holdings of RIMM and Ontario Teachers' and Coatue Management increased their holdings of Nokia (betting on recovery but still, small portion of their portfolio).

Some of the better information from 13-F filings for individual investors comes from funds that don't churn their portfolios. Here I am thinking of pensions but also funds like Dodge & Cox who increased their positions in these companies below (click on image to enlarge):

Interestingly, Dodge & Cox significantly increased its position in NetApp (NTAP). Only mention this because the stock got hit last quarter and I also noticed Soros and Farallon Capital initiated new positions (keep an eye on NTAP, room to rise from these levels).

What are some other stocks I like at these levels? Fairholme Capital Management and many other top hedge funds are among the top holders of AIG. Have a look at the chart of American International Group (AIG) below (click on image to enlarge):

In fact, financials as a whole are cheap. Top funds have been buying Bank of America (BAC), Citigroup (C), Wells Fargo (WFC), JP Morgan (JPM), Goldman Sachs (GS), Morgan Stanley (MS) and UBS (UBS).

Just have a look below where Warren Buffett's Berkshire Hathaway increased its holdings in Q2 (click on image to enlarge):

A few other stocks that got hit recently which I track closely are Green Mountain Coffee Roasters (GMCR), Netflix (NFLX) and MAKO Surgical (MAKO). A lot of hedge funds are exhibiting interest in these companies too (be careful!!).

For example, Green Mountain Coffee Roasters (GMCR) got hit in Q2, so check out who increased their holdings last quarter and you will see well known funds. In alternative energy, First Solar (FSLR) seems to be staging a comeback (Coatue is among its top holders).

These stocks got destroyed over past year but seems to be basing here (click on image to enlarge):

In terms of pensions, here is where Ontario Teachers' Pension Plan increased its holdings in Q2 2012 (click on image to enlarge):
Notice the common theme: financials, energy and tech keeps popping up. There is a reason why this is the case, these sectors stand to gain the most if the global recovery takes hold. Not surprisingly, shares in many companies I track were among the NYSE volumes leaders this past week.

Also noticed a lot of funds buying up Sprint Nextel (S) and Sirius XM Radio (SIRI). As shown below, both stocks are making new highs after long basing (don't chase them! Click on images to enlarge):

I often work backwards. For example, if I think there is a global recovery, want to know who initiated positions in copper mining giant Freeport McMoran (FCX). As shown below, both Caxton Associates and Soros initiated new positions in Q2 (click on image to enlarge):

Below, I will leave it up to you to explore the activity of top funds I listed. It's time consuming but you will learn a lot by going through their activity. Use this information wisely and just remember my three rules above. Most of you are not money managers so don't pretend to be.

Also, investors looking to get more information on quarterly activity of hedge funds should sign up with market folly. Their premium newsletter is out next week and you can download their Q1 issue which was released in May for free by clicking here.

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

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 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

6) Winton Capital Management

7) Graham Capital Management

8) SABA Capital Management

Top Long-Only 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) Sasco Capital

6) Schneider Capital Management

7) ValueAct Capital

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) Vinik Asset Management

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) Viking Global Investors

58) Zweig-Dimenna Associates

Top Sector 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

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

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

Hope you enjoyed this comment. Will likely beef it up over weekend but for now, want to enjoy this beautiful Saturday in Montreal.

Once again, please remember to support this blog via a monthly subscription above under the blog banner.
You simply won't find any other blog that covers as much in such depth and breadth.

Below, leave you with you a Bloomberg clip on what hedge funds are buying. According to Bloomberg, gold traders are the most bullish in six weeks as investors boosted their bullion holdings to a record on concern that economic growth is slowing and after billionaires John Paulson and George Soros bought more metal (nibble but be careful!!!).