George Soros Fund Management Favors Bonds: 13F Filing Q1 2009 ~ market folly

Wednesday, June 17, 2009

George Soros Fund Management Favors Bonds: 13F Filing Q1 2009

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

Next up is Soros Fund Management ran by George Soros. Soros (who photographs extremely well by the way) is famous for his stellar returns with partner Jim Rogers when they ran their Quantum fund. (We just covered Jim Rogers' portfolio today too). Now, he has carried his investment style over to his own firm. Whether it be equities, bonds, currencies, debt, or commodities, Soros is more of a global macro player, seeking investments in whatever market they can gain an edge. So, keep in mind that these equity positions only represent a portion of the fund's overall holdings. They are not required to disclose holdings outside of equities, notes, and stock options. 2008 was an interesting time to be investing, to say the least. Soros detailed his thoughts about his portfolio from 2008 and it makes for a good read. His fund finished 2008 up 8% as noted in our hedge fund year end performances post. His success in 2008 came from making correct bets on the US dollar and betting that short term interest rates in the UK would decline. Interestingly enough, Soros was down for much of the year, until he fought his way back with overtrading.

Soros is good to track because of his excellent macro sense and formidable track record as an investor. His thoughts on the current financial landscape are detailed in his latest book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means. Soros sees a vast consolidation in the hedge fund space in the near future, as we noted when we recently checked in on Quantum Fund ex-partners Jim Rogers & George Soros. If you want to get a better sense as to how Soros formulates his investment theses, we highly recommend reading his first book, The Alchemy of Finance. This book is a staple in our recommended reading list and after you read it, you'll understand why.

Over the past few months, Soros has been busy with various SEC filings that we've covered. We covered his new position in Plains Exporation (PXP) and his 13G filing on Mercury Computer (MRCY). We like to track Soros since he has a solid track record and a great macro sense. We'll see what he has in his portfolio this time around.

The following were Soros Fund Management's long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.

Some New Positions (Brand new positions that they initiated in the last quarter):
Entergy (ETR), Plains Exploration (PXP), Walgreens (WAG), American Electric (AEP), Smucker (SJM), Kohls (KSS), Occidental Petroleum (OXY) Puts, Novell (NOVL) Bond, iShares Mexico (EWW) Puts, Weyerhaeuser (WY), Coach (COH), and numerous other very small positions (each less than 0.1% of their portfolio)

Some Increased Positions (A few positions they already owned but added shares to)
Macys (M): Increased by 1,624%
Lowes (LOW): Increased by 387%
Walmart (WMT): Increased by 287%
Heinz (HNZ): Increased by 282%
Home Depot (HD): Increased by 280%
RF Micro (RFMD) Bond: Increased by 193%
MCDATA (inactive) Notes: Increased by 82%
Lattice Semiconductor (LSCC): Increased by 29%
Conoco Phillips (COP): Increased by 20.8%

Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Best Buy (BBY): Reduced by 80%
Arch Coal (ACI): Reduced by 70%
Desarrolladora Homex (HXM): Reduced by 54%
Union Pacific (UNP): Reduced by 31%
Petroleo Brasileiro (PBR): Reduced by 14%

Removed Positions (Positions they sold out of completely)
Merrill Lynch (MER), Mercury Computer (MRCY) Bond, Digital River (DRIV) Bond, Omnicom (OMC) Bond, Redhat (RHT) Bond, Schlumberger (SLB), Consol Energy (CNX), Cymer (CYMI), Jetblue (JBLU), Petroleo Brasileiro (PBR) Calls, Skyworks Solutions (SWKS) Bond, Amdocs (DOX) Bond, and numerous other positions that were barely 0.1% of their overall portfolio

Top 15 Holdings (by % of portfolio)

  1. Petroleo Brasileiro (PBR): 21.3% of portfolio
  2. Potash (POT): 10.2% of portfolio
  3. Linear Technology (LLTC) Bond: 4.5% of portfolio
  4. LSI (LSI) Bond: 4.5% of portfolio
  5. Hess (HES): 4.4% of portfolio
  6. RF Micro (RFMD) Bond: 3.8% of portfolio
  7. MCDATA (inactive) Note: 3.6% of portfolio
  8. Conoco Phillips (COP): 3.6% of portfolio
  9. Macrovision (MVSN) Note: 2.6% of portfolio
  10. RF Micro (RFMD) Bond: 2.3% of portfolio
  11. Lowes (LOW): 2.2% of portfolio
  12. Walmart (WMT): 2.1% of portfolio
  13. Home Depot (HD): 2.1% of portfolio
  14. Tech Data (TECD) Bond: 2% of portfolio
  15. Macys (M): 1.9% of portfolio

The very first thing you will notice about Soros' portfolio is his large stake in Petroleo Brasileiro (PBR). He has had this position for a while and continues to hold it (but has sold a few shares). However, the main thing we want to focus on here is Soros' propensity to play bonds versus equity. If you look at his top 15 holdings above, 7 of those positions are bonds or notes. This is very high compared to most other hedge funds we track and we found it interesting. Part of this is due to the fact that we typically track long/short equity funds and Soros could be classified as more of a global macro player. As such, maybe there is something to be gleaned from his positioning here.

This is not to say that he has avoided equities though. Because, he obviously holds numerous equities as well. But, such a high concentration of bond positions in the top of his portfolio cannot be overlooked. In terms of his equity plays, PBR, Potash (POT), and Hess (HES) are by far his biggest positions in this regard. It definitely appears as if he is playing the commodity/emerging markets/'recovery' plays here. And, such positioning has obviously paid off so far this year.

Some of the major additions he made were to the shares of Home Depot (HD), Walmart (WMT), Macys (M), and Lowes (LOW). This definitely wreaks of the 'recovery' theme and we'll continue to track his movements in this regard. Some notable selling activity in his portfolio was the 80% trimming he did on his Best Buy (BBY) shares. Previously, BBY had been in excess of a 5% position for him, but it now sits at just over 1.5%.

Assets from the collective holdings reported to the SEC via 13F filing were $4.5 billion this quarter compared to $4.6 billion last quarter, so very little change. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. Check back each day as we cover new fund portfolios. We've already covered Andreas Halvorsen's Viking Global, John Paulson's hedge fund Paulson & Co, Stephen Mandel's Lone Pine Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, and David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Timothy Barakett's Atticus Capital, Lee Ainslie's Maverick Capital, Raj Rajaratnam's Galleon Group, Shumway Capital Partners (Chris Shumway), Bret Barakett's Tremblant Capital Group, Boone Pickens' BP Capital Management, Whitney Tison's T2 Partners, Chase Coleman's Tiger Global, and David Stemerman's Conatus Capital.

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