Friday, April 24, 2009

Custom Hedge Fund Portfolio Created With Alphaclone: Part 2

Ok, so we're back with the second installment of our custom Market Folly hedge fund portfolio created with Alphaclone. Last week, we unveiled our special portfolio that is a unique blend of 3 separate hedge funds: Eric Mindich's Eton Park Capital, Seth Klarman's Baupost Group, & Shumway Capital Partners (Chris Shumway). After a month straight of creating various portfolios, we finally found the right combination. The portfolio we created last week looks at the top 5 holdings from each of those hedge funds (equal-weighted) and meshes them into one portfolio of 15 holdings. We ran the portfolio with a 50% S&P500 hedge (which can be achieved by shorting SPY). When all was said and done, we saw that since August 2002, our Market Folly 'Top Holdings' portfolio has seen Alpha of 15.5 and a total return of 194.5% versus the S&P500 return of only 6.6%. It also has seen annualized returns of 17% versus the S&P annualized of 0.8%. As you can see, that's some solid performance. We created it all with Alphaclone, which you can get currently with a 50% discount. We use it every single day and highly recommend it if you're interested in creating portfolios based on hedge fund holdings.

This week, we're going to examine a portfolio based on the top 5 'best ideas' of each of those hedge funds. So, before we begin, make sure you check out the introduction to Alphaclone, our post on the Tiger Cub portfolio, as well as our previous post on our custom Market Folly clone.

The Market Folly 'Best Ideas' Portfolio

This week we've gone with a slightly different strategy. One of the other options Alphaclone has is it lets you run a portfolio based off a hedge fund manager's "best ideas." The rules associated with this clone strategy are:
1. Buy manager(s) top “new buys” as determined by the market value of the holdings.
2. Sell when manager(s) reports holding as sell out
3. Sell if the number of shares held by a manager decreases by 50% or more from the original amount.
4. Limit clone portfolio to no more than 50 holdings selected first on the basis of whether they are a new buy and next based on the % Portfolio of the holding.

So, we've taken the best ideas of the 3 hedge funds in our portfolio group to create a custom portfolio. You have the option to select either the top 1, 2, 3, or 5 best ideas from each fund. In our case, we've selected the top 5 best ideas from each hedge fund. And, as we mentioned earlier, we also set it up with a 50% S&P hedge, as we always like to run our portfolios hedged. Here's what the inputs look like on the Alphaclone screen:

(click to enlarge)

As we've touched on in previous posts on Alphaclone, you can configure your funds in numerous different ways, so it's totally customizable.

The Performance

Now, let's take a look at how the fund has performed over time. Overall, the results are quite impressive. Since August 2002, the Market Folly 'Best Ideas' Portfolio has seen a total return of 128.1% versus the S&P500 return of only 8.2%. The graph below shows our portfolio in green and the S&P in blue.

(click to enlarge)

Our portfolio has also seen an annualized return of 13.5% versus only 1.2% annualized for the S&P. Yet again, we've achieved some nice outperformance. And, we've done so with 11.8 Alpha, 0.8 Beta, and 0.6 correlation to the index. Our portfolio has achieved these results with a Sharpe Ratio of 0.5 (versus S&P -0.2) and has also seen less drawdown than the S&P. However, we did see slightly more volatility than the S&P. Overall, the portfolio is definitely a success and has outperformed the S&P. Let's also take a look at our year by year performance, as Alphaclone breaks it all down for us:

(click to enlarge)

As you can see, our portfolio is massively outperforming the S&P500 thus far in 2009. We have seen a 26.7% year to date return versus the S&P return of -5.8%. Additionally, you'll note that in both bear markets of 2002 and 2008, our portfolio outperformed the index by a wide margin. Out of 8 years, our clone has only underperformed in 2 of those years. And, the massive outperformance in the other 6 years more than makes up for that slight hiccup. Alphaclone gives you a great performance breakdown and gives you the ability to export all the data to Excel as well. After all is said and done, our portfolio has a total return of over 128% versus S&P's return of only 8.2%. That is outperformance over the long term at its finest.

The Holdings

Lastly, let's take a quick look at what our 'best ideas' holds in its portfolio that is currently achieving such massive outperformance. Remember, Alphaclone automatically rebalances the portfolio for you each quarter and tells you which securities to buy and sell (if you wished to mimic this with real money). As you'll see from the tabs on the screenshot below, you can see the recent transactions, as well as check out what the portfolio held in previous quarters. Alphaclone perfectly backtests everything based on the SEC filings that we like to cover on Market Folly. Without further ado, the holdings:

(click to enlarge)

Make sure to ignore the "% of Portfolio" column on the screenshot above. That column references how big a specific position is for its owner's hedge fund portfolio. So, when you see that Hansen Natural (HANS) makes up 10.3% of the portfolio... it means it is 10% of Eton Park's portfolio. All of our positions in the portfolio we've customized are equal-weighted. So, each of our holdings would get a 6.66% allocation. As you can see, our portfolio holds a wide variety of names and has severely outperformed the S&P thus far in 2009. It will be interesting to examine our portfolio again once Alphaclone automatically rebalances the holdings in May. We'll be posting an update once that happens.

The Comparison: 'Top Holdings' Versus 'Best Ideas'

In our custom Market Folly portfolios, we've created two different clones with Alphaclone that have both outperformed the S&P by a huge margin. However, one of our clones was even more successful than the other. Drumroll please: And the winner is......... The Top Holdings Portfolio.

If you compare the portfolios side by side, here's what you get:

1. The 'Top Holdings' Portfolio: Total return of 194.5% since August 2002; Annualized return of 17%
2. The 'Best Ideas' Portfolio: Total return of 128.1% since August 2002; Annualized return of 13.5%
3. S&P500: Total return of 5.6% since August 2002; Annualized return of 0.8%

While both of our portfolios easily outperform the S&P500 over the long term, the 'top holdings' portfolio goes above and beyond. As such, it is currently our selection for our custom Market Folly portfolio that we will be tracking on the blog from here on out. With the customization of Alphaclone, we were able to create thousands of custom portfolios and we've finally found the one that dominates.


Hopefully you've enjoyed walking through our journey of creating a custom portfolio with Alphaclone. (We're starting to wonder if we're addicted to this tool since we use it everyday). Alphaclone is currently 50% off, so definitely check it out while the offer lasts. It is truly customizable and you'll be hooked for hours once you start to create portfolios. And, as illustrated above, you can come up with some massively outperforming strategies that you can put real money behind.

If you've missed our previous posts on hedge fund portfolio creation, check out our introduction to Alphaclone, our fund of funds (the Tiger Cub clone), and our custom Market Folly portfolio we created last week. If you have any questions or comments, feel free to mention them below or drop us an email.

Stay tuned, as we're going to start a contest in the near future to see who can customize the most dominant portfolio with Alphaclone. We want to find out which readers can take down our total return of 194.5% since mid-2002 and an annualized return of 17% with a custom group of funds. Be on the lookout and get ready to bring it on!

*Please note that all our Market Folly portfolios have a filter set at the very beginning of the Alphaclone custom portfolio process where we exclude positions with a market cap greater than $50 billion. We still allow all sectors and all other market caps. If you wish to replicate our portfolio with Alphaclone, just make sure when you create your custom fund group that you 'uncheck' the "greater than $50 billion market cap" box at the beginning, so that those positions are excluded from the portfolio. We did this because we found that slightly better performance could be achieved when enabling this filter.

Bill Ackman Quote (Pershing Square Capital)

After getting his ass handed to him thus far in his Target (TGT) position, Ackman had these instrospective words of wisdom which we wanted to share as they can be applied to any investor in the world. Ackman said,

“The investment business is about being confident enough to know that you’re right and everyone else is wrong. Yet you have to be humble enough that you recognize when you’ve made a mistake. Earlier in my career, I think I had the confidence part pretty solid. But the humbleness part I had to learn.’’

What We're Reading (4/24/09)

2009 Alternative Asset Report (Hedge Funds) [nick gogerty]

Profile on Pershing Square's Bill Ackman [Portfolio]

Distressed Debt Investing Concept - General Growth Properties (GGP) and Substantive Consolidation [Distressed Debt Investing]

Rebalancing leveraged ETFs each day [Daily Options Report]

StockTwits launches premium blogs of great traders UpsideTrader & Alphatrends [StockTwits]

Why Hedge Funds are Not 'Too Big to Fail' [hedgefundblogman]

Thursday, April 23, 2009

Free Technical Analysis & Stock Charts

We've been receiving a lot of questions about technical analysis lately and so I wanted to point out a great resource for people who wanted some quick technical analysis for free. Some people just look at a chart and have no idea what all the lines mean or what they're supposed to be looking for. And, I must say, I was the same way when I first started to include charts as a tool in my investment arsenal. And, I'm writing this because there's a good solution for those of you who are just learning about it but want to know what the technicals are saying about a particular stock right now. A great place to start is to learn about trends and how they play out over time.

INO has a free technical analysis tool where you can just enter the ticker symbol and your email address and receive an analysis of the stockin your inbox. And, you can do this for things other than stocks by entering "crude oil" or "gold", etc. So, definitely check that out if you want a quick glance at how some equities are shaping up technically in the current market.

Below is just one of the samples of what they will send you for your quick free chart analysis. They'll show you the short-term trend, the longer term trend, as well as provide commentary on the current technical setup. They've also devised a numerical score based on a weighted formula from their Smart Scan chart analysis. Here's an older free technical analysis email covering Wells Fargo (WFC) at the beginning of February 2009:

(click to enlarge)

You'll notice that their technicals implied that the rally in WFC shares in January was only a short-term trend in the context of a larger downward trend. And, as such, shares of WFC dropped from $18 to $12 in February. This free technical analysis tool definitely helps you see the near and long term trends in a stock. So, just wanted to share this free resource for those who are curious about a stock's technicals in this current market.

Also, if you want to learn more about technical analysis and chartology, check out some of the books in our recommended reading list.

Portfolio Update on Philip Falcone's Harbinger Capital Partners (13D & Form 4)

Philip Falcone's hedge fund Harbinger Capital Partners made numerous SEC filings yesterday after the close and so we wanted to cover those really quick. Firstly, Harbinger has filed an amended 13D on TerreStar (TSTR) due to activity on April 20th, 2009. They are now showing a 48.6% ownership stake in TSTR with 88,855,174 shares owned in aggregate. Back in their 13F filing detailing positions from December 31st, 2008, Harbinger had previously owned 26,954,794 shares. So, over the past few months they've definitely ramped up their position. You can view Harbinger's entire portfolio here.

Secondly, Harbinger has also filed an amended 13D and a Form 4 on Solutia (SOA). They are showing a 31.9% ownership stake in SOA. The Form 4 details that they sold 2,031,700 shares on April 20th & 21st at prices of $2.96, $3, & $3.07 per share.

Lastly, we also recently noted that they have been selling some of their Cliffs Resources (CLF) position. Harbinger has seen recent portfolio performance of +0.74% for March 2009, and +4.06% year to date as of that timeframe, as referenced in our detail of hedge fund performances. They've been quite active with filings and we'll continue to monitor them going forwards.

Harbinger Capital Partners is a $13 Billion firm ran by Philip Falcone. Harbinger was started in 2000 with seed capital from Harbert Management ($25 million). And, just recently, we've learned that Falcone is buying out Harbert to be the owner of the firm. Falcone made a name for himself in 2007 when he started shorting subprime mortgages and returned 117%. He focuses on intensive credit research, on bankruptcies and proxy fights, and was previously involved with high yield debt trading. Lately, he's been focused on equities it seems, but Harbinger's new fund will redirect his focus back to his roots.

At one point during 2008, they were up as much as 42%. But, their fortunes turned as their Offshore fund finished -22.7% for the year as noted in our 2008 hedge fund performances list. One position that treated them nicely was their short of Wachovia (WB), which we detailed here. Back in September, in a letter to investors, Falcone had assured investors that Harbinger was adequately positioned to stave off any further volatility the markets may bring their way, noting that the firm had reduced exposure to some of their higher volatility holdings (both on the long and short side).

In Harbinger's latest letter to investors, they mentioned that they had covered their shorts on metal producers and financials and also got out of some credit default swaps. While they have been winding down equity positions, they are sticking with their major stakes in Calpine (CPN) and the New York Times (NYT). Falcone also mentioned that they had added trade claims on an energy company and credit default swaps on various consumer plays (retailers, products, & services). Lastly, we saw that Philip Falcone was recently unveiled as a part of Forbes' billionaire list.

Taken from Google Finance,

TerreStar is "in the integrated satellite wireless communications business through its ownership of TerreStar Networks and TerreStar Global. TerreStar Networks is the Company’s principal operating entity. In cooperation with its Canadian partner, 4371585 Canada, it plans to launch wireless communications system to provide mobile coverage throughout the United States and Canada using small, lightweight handsets similar to mobile devices. The Company’s core network strategy is based on three elements: the space segment; the terrestrial network; and universal chipset architecture to be integrated into a range of mobile devices."

Solutia is "a global manufacturer and marketer of a variety of chemical and engineered materials that are used in a range of consumer and industrial applications. The Company maintains a global infrastructure consisting of 25 manufacturing facilities, six technical centers and over 29 sales offices globally, including 14 facilities in the United States. The Company’s segments are Saflex, CPFilms and Technical Specialties."

Alpha's Hedge Fund Rankings 2009

Alpha is out with their annual hedge fund rankings and they've compiled a list of the top 100 hedge funds by assets and the combined hedge funds on the list totaled $1.03 trillion in assets. Ray Dalio's Bridgewater Associates is the top of the pack with $38.6 billion under management. In 2008, they were the #2 fund on the list and they have since passed JP Morgan to garner the top spot. (JP Morgan notably lost ground due to sluggish performance & redemptions at their Highbridge Capital unit). Although we haven't covered Bridgewater's portfolio, we've covered some of Ray's market thoughts previously. Their Pure Alpha fund finished up 8.7% for 2008. Previously, we've also covered Alpha's 2008 rankings in depth if you wish to compare years.

For this year's rankings, they slightly changed the way they indexed their rankings by using firm and fund assets from January 1st, rather than the December 31st data they had previously used. In order to qualify for the top 100 hedge funds in the world, a firm needed at least $4 billion to be considered. In 2008, this threshold was around $6.25 billion. Clearly the decrease in assets under management overall reflects the severity of the market in 2008.

Top 10 for 2009

Here are the top 10 hedge funds, with links leading to that specific fund's portfolio holdings:

  1. Bridgewater Associates (Ray Dalio) with $38,600 (in millions)
  2. JPMorgan with $32,893 (in millions)
  3. Paulson & Co (John Paulson) with $29,000 (in millions)
  4. D.E. Shaw & Co (David E Shaw) with $28,600 (in millions)
  5. Brevan Howard Asset Management with $26,840 (in millions)
  6. Man Investments with $24,400 (in millions)
  7. Och-Ziff Capital Management with $22,100 (in millions)
  8. Soros Fund Management (George Soros) with $21,000 (in millions)
  9. Goldman Sachs with $20,585 (in millions)
  10. Tie: Farallon Capital Management (Thomas Steyer) & Renaissance Technologies (Jim Simons) both with $20,000 (in millions)

Undoubtedly, you can find many of the hedge fund managers listed above on Forbes' billionaire list. Not only do the funds above garner the most assets under management, but they receive some of the highest compensation around for their production. We've covered many of the hedge funds portfolios listed in the top 10 above. Additionally, practically all of the funds we cover in aggregate are in the top 100.

Moving on Up

A noted value player, Seth Klarman's Baupost Group benefited from 2008 the most in terms of rankings. Baupost's assets grew over the past year and find themselves as the hedge fund to make the biggest leap between years. Baupost was 49th in 2008 and now sits in 13th for 2009. This past year was Klarman's first losing year as his funds were down around 7 to 12% but had practically no redemptions. You can view their portfolio holdings here. Paulson & Co was a notable mover on the list as well, as they jumped from 8th place in 2008 to 3rd place in 2009 (their portfolio here). London based Brevan Howard also benefited as they moved from number 11 in 2008 up to number 5 in 2009. Their 2008 performance was quite solid as their main fund finished up 20.4%.

Sliding Down

In terms of funds that fell in the rankings, Thomas Steyer's Farallon Capital Management definitely fits the bill. His fund lost nearly 45% of their assets due to redemptions and poor performance. Their funds were -24% on average for 2008 and you can see where their pain came from by checking out their portfolio holdings. Another notable mover not listed in the top 10 would be global macro giant Bruce Kovner's Caxton Associates. Last year, Caxton was number 16 on the list. However, due to loss of assets they are now number 51 on the 2009 rankings.

Other Notes

Stephen Mandel's Lone Pine Capital was ranked 17th in 2008 and comes in 21st for 2009. Their assets were down 28% but only due to poor performance, not really because of redemptions. You can check out the comprehensive list of hedge fund portfolios we cover here. To see how some of these hedge funds are performing, you can find their latest numbers in our performance numbers list. And, of course, head to Alpha if you wish to purchase the full list of rankings.

Sprott Asset Management (Eric Sprott) Older Special Report

Great commentary and special report from Eric Sprott's Sprott Asset Management that is older yet very relevant: Move over Adam Smith: The Visible Hand of Uncle Sam. Many readers have requested that we start covering them, and we are gladly obliging, as you will see information on them from here on out. Since they are Canadian based and we are American based (and hence focus mainly on American funds), we would gladly welcome any information or updates our Canadian readers receive on Sprott. So, feel free to share with us. We've been assembling a good amount of information and content, but we surely have missed a few things. Without further ado, courtesy of Zero Hedge. (RSS & Email readers may need to come to the blog to read it).

Wednesday, April 22, 2009

Barron's Discount: 40% Off

The deals on these financial publications just keep on rolling in. Here is yet another deal that we wanted to share with readers: 40% off Barron's. In addition to the big discount, you also get 4 weeks free as an added bonus.

As we've mentioned in some of our articles before, the newspaper industry is definitely rolling out some deals in the recession. Don't forget that you can also get the Wall Street Journal for 75% off too.


Daniel Loeb's Hedge Fund Third Point LLC: 13F Filing Q4 2008

This is the 4th Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings preface.

Next up, we have Daniel Loeb's Third Point LLC. Third Point is a $2 billion activist and value based hedge fund. Specifically, they deem themselves to be "event driven, value oriented investors." Loeb founded the firm back in 1995 with $3.3 million in seed capital and is still running the show these days. While Third Point is technically an activist fund, Loeb often has numerous passive investments as well. Loeb himself is quite well known for his searing and critical letters to management of various companies. Third Point has seen annual returns averaging over 15% since inception (including the crazy year that was 2008), a Sharpe Ratio of 0.9, and a correlation to the S&P500 of 0.4. In terms of recent portfolio performance, Third Point was -3% for March, and -1.44% year to date as of then, according to our list of March hedge fund numbers. As per their recent April investor update, we saw that they were net long healthcare and utilities, while being heavily net short consumer.

If you want a more historical perspective on Third Point's portfolio, you can check out their holdings from Q3 2008, the quarter prior to the positions detailed below. We track these funds on a quarter by quarter basis to establish their longer-term moves. Slight disclaimer: Third Point has been pretty active with 13D & 13G filings in the time period that has elapsed from this filing to the present. As such, certain positions in their portfolio have been updated and we will be covering all of those more recent moves in another post tomorrow, to distinguish the moves from the list of their entire portfolio below.

The following were their long equity, note, and options holdings as of December 31st, 2008 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):
Gold (GLD)
Wachovia (WB)
Liberty Acquisition (LIA)
Potash (POT)
Trian Acquisition (TUX)
Triplecrown (TCW)
Sapphire Industrials (FYR)
Global Brands (GQN)
Guaranty Financial (GFG)
Global Consumer (GHC)
Hicks Acquisition (TOH)
LifeTime Fitness (LTM)

Some Increased Positions (A few positions they already owned but added shares to)
PHH (PHH): Increased by 160%
UST (UST)): Increased by 60%

Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Vanguard Natural Resources (VNR): Reduced by 65%
Rohm & Haas (ROH): Reduced by 64%
CoreMark Holding (CORE): Reduced by 37%
Telephone & Data (TDS): Reduced by 32%
Energy XXI (EXXI): Reduced by 32%
Teradata (TDC): Reduced by 30%
Txco Resources (TXCO): Reduced by 27%
Victory Acquisitions (VRY-WS): Reduced by 24%
Maguire Properties (MPG): Reduced by 23%
Phoenix Companies (PNX): Reduced by 22%
Dineequity (DIN): Reduced by 20%
Epicor Software (EPIC): Reduced by 18%

Removed Positions (Positions they sold out of completely)
Dr Pepper Snapple (DPS)
Plains Exploration (PXP)
Lorillard (LO)
Leap Wireless (LEAP)
Time Warner (TWX)
Tibco (TIBX)
Anheuser Busch (BUD)
American Eagle Outfitters (AEO)
Liberty Acquisition (LIA-U)
Thompson Creek (TC)
Orient Express Hotels (OEH)
Meadwestvaco (MWV)
CVS Caremark (CVS)
Hewlett Packard (HPQ)
Covidien (COV)
Target (TGT)
Flow (FLOW)
Enpro (NPO)
Verigy (VRGY)
GLG Partners (GLG)
Global brands (GQN-U)
Global Consumer (GHC-U)
Trian Acquisition (TUX-U)
Augusta (AZC)
Vantage Energy (VTG)
Heckmann (HEK-WS)
OSI Systems (OSIS)
Heckmann (HEK)
Emcore (EMKR)

Top 15 Holdings (by % of portfolio)

  1. SPDR Gold Trust (GLD): 9.73% of portfolio
  2. Wachovia (WB): 8.66% of portfolio
  3. PHH Corp (PHH): 8.29% of portfolio
  4. Exco Resources (XCO): 8.15% of portfolio
  5. Liberty Acquisition Holdings (LIA): 7.2% of portfolio
  6. Potash (POT): 5.5% of portfolio
  7. Teradata (TDC): 5.2% of portfolio
  8. SPDR S&P 500 (SPY): 5.17% of portfolio
  9. Telephone & Data Systems (TDS): 3.8% of portfolio
  10. UST (UST): 3.5% of portfolio
  11. Victory Acquisition (VRY): 3.17% of portfolio
  12. Trian Acquisition (TUX): 3% of portfolio
  13. Nabi Biopharma (NABI): 2.9% of portfolio
  14. Phoenix Companies (PNX): 2.9% of portfolio
  15. Triplecrown (RCW): 2.7% of portfolio

Like so many other hedge funds, Third Point's top holding is Gold (via GLD), and they brought it on as a new holding last quarter. As you can tell, Third Point's portfolio is slightly more concentrated than many other hedge funds, with a large percentage of their portfolio in their top 6 or 7 holdings. Some of their notable sales include Dr Pepper, Plains Exporation, and Lorillard, all which were at one point greater than a 4.5% position for Third Point; they no longer own those names. We would like to make special note of the current list of Third Point's holdings seen above. Since filing this 13F, they have been busy filing various 13D's and 13G's with the SEC, detailing changes to some of their positions. As such, we will cover these more recent moves in a separate post to which we can compare the holdings. Assets from the collective long US equity, options, and note holdings were $1.7 billion last quarter and were $799 million this quarter. This is just one of many funds in our hedge fund portfolio tracking series in which we're tracking 35+ prominent funds. We've already covered:

We cover a new hedge fund each day and you can see the complete list of hedge fund portfolios here.

Hedge Funds: March Redemptions & Mid-April Performance Numbers

We wanted to touch on two quick data points really quickly. Firstly, is out saying that Hedge Fund assets only fell by 1% in March 2009. This is a mix of net redemptions of around 3% and a performance of 2% for the same month. As we've pointed out before, this is still a pretty significant number, but overall, the redemption wave is decelerating a little bit, rather than accelerating. We have postulated numerous times that October and November was the major splash in the pool and that various ripples will be felt for the next year or two until the industry stabilizes.

Secondly, Here's a quick look at how some major hedge funds are performing midway through April 2009, courtesy of our friends over at Zero Hedge.

(click to enlarge)

Keep in mind that we've covered the portfolios of numerous hedge funds listed above. So, if you're curious as to what many of those funds are holding, check out our cumulative list of hedge fund portfolio coverage.

And then we also wanted to toss in a few other interesting pieces. As of 4/17/09, here is the Hedge Fund Performance Review (in downloadable .pdf format) courtesy of Dealbreaker. Lastly, we covered the March 2009 performance figures in a previous post as well if you've missed that. Hedge Fund land marches on.

Tuesday, April 21, 2009

Market Folly's 1st Anniversary!

Hey everyone, just wanted to let you all know that it is now Market Folly's 1st Anniversary. It started one year ago with 0 readers, 0 subscribers, and some of my jumbled thoughts on various equities. Over the last year, the blog has evolved into a regular read for many, as we now have over 2,100 subscribers, and over 3,500+ visitors each day. So, we simply want to take a minute to reflect and to say thank you! Seriously, without readers, this blog would not exist. Thank you for reading, sharing, and interacting with me. It has been an absolute pleasure to interact with so many of you and I've become a smarter, more well-rounded person because of it. So, thanks! To celebrate our first anniversary, we have one request: Tell a friend! If you think you know someone who would enjoy or benefit from our content, then let them know we're here. Thank you again for all of your support, it truly means a lot.

If you aren't already, now's the perfect time to Subscribe to Market Folly for free via RSS reader or for free via Email. Also, we post intraday market thoughts over on our twitter account, so follow us on twitter as well! Don't forget that you can contact us at anytime; we love to hear from our readers. Our email is: marketfolly at If you've enjoyed reading the blog over the past year, feel free to make a donation, as we genuinely appreciate your support! You can make a donation via Paypal (or Credit Card) here.

Even though this is the official 1 year anniversary of Market Folly, we didn't really start to post actively and consistently until a month or so later. But, that's besides the point. We started our first round of hedge fund tracking back on May 19th, 2008. And, you can bet your ass that we'll be right back with another round of 13F's here this next month. Since some people have been curious, the name 'Market Folly' simply stems from our desire to poke fun at Wall Street for all the foolishness and punditry that often takes place there. And, hopefully we've fulfilled our moniker to some extent at least.

So, what does the future hold?

Rest assured that we aren't about to stop blogging. I started this blog as a place to share my thoughts on financial markets and to fill a niche in the financial blogosphere by tracking hedge funds. And, I'm glad other people like keeping tabs on hedge funds as much as I do. We'll continue to provide our hedge fund tracking, market commentary, and occasional equity analysis. In our latest reader poll, the results were crystal clear: You all want more hedge fund tracking. And, we will definitely do our best to expand our coverage. We're also debating bringing on some additional contributors who can help us cover more hedge funds and provide their own unique insight on topics that we often cover on the blog. So, if you're interested in such a a role and think you've got what it takes, definitely get in contact with us.

Again, thank you for your readership and support. Without you, this blog is just a meaningless blip on the massive world of the internet. If you have feedback and/or criticism, we welcome it with open arms, so comment below or email us. Thank you again, and we look forward to being your number one destination for hedge fund tracking and irreverent financial market commentary.

We'll leave you with some of the most popular articles on Market Folly right now:

- Alphaclone: the ultimate hedge fund portfolio replication tool

- The Deception & Reality of Earnings Season: Q1 2009

- Wall Street Journal Discount: 75% off

- March Hedge Fund Performance Numbers

- Chartered Hedge Fund Associate, CHA Designation

- Investor Psychology Illustrated

Thank you again for your support. Here's to another great year ahead!

~ Jay

Hedge Fund D.E. Shaw & Co: 13F Filing Q4 2008

This is the 4th Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings preface.

Next up is D.E. Shaw & Co. D.E. was founded in 1988 by David E. Shaw and manages around $33 billion as of December 1st 2008. They focus on intertwining technology and finance and are a hedge fund, private equity firm, and technology development shop all in one. They employ mainly quantitative strategies and do a lot of statistical arbitrage. Shaw oversees strategic maneuvers at the firm, but no longer is active in the day to day operations. He received his Ph.D. from Stanford University. Shaw also was recently seen on Forbes' billionaire list, as well as the list for Top 25 highest paid hedge fund managers for 2008. Some notable former employees include Jeff Bezos (before founding and Lawrence Summers, who left the firm to serve on President Elect Obama’s economic team. Shaw has had a decent year thus far, seeing their Composite fund +0.8% for March and sitting at +5.59% year to date (through 3/31/09) as detailed in our March hedge fund performance numbers update. In terms of somewhat recent activity, we had noted their activity in Orient- Express Hotels (OEH) back in January, in an ongoing saga.

In Alpha's hedge fund rankings, D.E. Shaw is ranked 6th in the world. Taken from their website, they invest “in a wide range of companies and financial instruments within both the major industrialized nations and a number of emerging markets. Its activities range from the deployment of investment strategies based on either mathematical models or human expertise to the acquisition of existing companies and the financing or development of new ones.” Lastly, for those of you potentially interested in working at such an outfit, check out some of their past interview questions.

Disclaimer: Do note that tracking DE Shaw through 13F filings is not beneficial due to the quant nature of their firm. We are tracking them because they are a popular, prominent fund with solid returns and many readers continually request it. While the majority of funds we cover are appropriate for tracking given their strategy and research methods, there is no way for us to know the exact rhyme or reason behind DE's positions. So, we are simply posting this up for fun. Use this information for entertainment purposes only.

The following were their long equity, note, and options holdings as of December 31st, 2008 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):
Ventas (VTR), Apogent Tech (inactive), Essex Property Trust (ESS), US Bancorp (USB) Bond, Encana (ECA), Wendys/Arbys (WEN), Sybase (SY) Bond, Gilead (GILD) Bond, PSS World Medical (PSSI) Bond, Burlington Northern (BNI) Puts, Danaher (DHR), Medco Health (MHS), Best Buy (BBY) Bond, Occidental Petroleum (OXY) Puts, Dicks Sporting Goods (DKS) Bond, Kohls (KSS), Cliffs Natural Resources (CLF), Highwoods (HIW), Symantec (SYMN) Bond, Jones Lang Lasalle (JLL), Royal Dutch Shell (RDS-A), Senior Housing Properties (SNH), OReilly Automotive (ORLY), World Fuel Services (INT), L3 Communications (LLL), Ebay (EBAY) Puts, Dupont (DD) Puts, Kilroy Realty (KRC), NV Energy (NVE), & Hewitt Associates (HEW)

Some Increased Positions (A few positions they already owned but added shares to)
Abbott Laboratories (ABT): Increased by 467%
Bank of America (BAC) Calls: Increased by 110%
Apple (AAPL) Puts: Increased by 102%
Qualcomm (QCOM): Increased by 45%
Walmart (WMT): Increased by 28%
Laboratory Corp (LH) Bond: Increased by 20%
Abraxis Bioscience (ABII): Increased by 13%
Warner Chilcott (WCRX): Increased by 11%

Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Exxon Mobil (XOM): Reduced by 65%
Equity Residential (EQR): Reduced by 60%
Burlington Northern (BNI): Reduced by 45%
Union Pacific (UNP): Reduced by 44%
Pfizer (PFE): Reduced by 33%
News Corp (NWS-A): Reduced by 31%
Cephalon (CEPH): Reduced by 26%
Coca Cola (KO): Reduced by 20%
Mastercard (MA): Reduced by 19%
Anadarko Petroleum (APC): Reduced by 14%

Removed Positions (Positions they sold out of completely)
Anheuser Busch (BUD), Merill Lynch (MER) Calls & Puts, Symantec (SYMC), Procter & Gamble (PG) Puts, CA (CA), DRS Tech (inactive), Imclone (IMCL), Prudential (PRU) Bond, Allied Waste (AW), SLM (SLM), Lehman Brothers (LEHPQ) 7.25% Preferred, Nabors (NBR) Note, Autozone (AZO), Invitrogen (IVGN), Mylan (MYL-PA), Anheuser Busch (BUD) Calls, Everest RE group (RE), Wrigley (inactive), Nationwide Health (NHP-PB), Barr Pharma (BRL), Coca Cola (KO) Puts, Hutchinson Tech (HTCH) Note, Best Buy (BBY), Brookfield Asset Management (BAM), Developers Diversified (DDR), Kimco (KIM), Grey Wolf (GW), & Sierra Pacific (SRP)

Top 15 Holdings (by % of portfolio)

  1. Endo Pharma (ENDP): 1.25% of portfolio
  2. Vertex Pharma (VRTX): 1.23% of portfolio
  3. Warner Chilcott (WCRX): 1.19% of portfolio
  4. Pfizer (PFE): 0.97% of portfolio
  5. Goldman Sachs (GS) Calls: 0.9% of portfolio
  6. Google (GOOG) Calls: 0.87% of portfolio
  7. Mylan (MYL): 0.87% of portfolio
  8. Owens Corning (OC): 0.83% of portfolio
  9. Qualcomm (QCOM): 0.8% of portfolio
  10. Walmart (WMT): 0.78% of portfolio
  11. Mastercard (MA) Calls: 0.72% of portfolio
  12. Anadarko Petroleum (APC): 0.67% of portfolio
  13. AvalonBay Communities (AVB): 0.64% of portfolio
  14. Davita (DVA): 0.6% of portfolio
  15. Coca Cola (KO) Calls: 0.6% of portfolio

Again, please keep in mind that since Shaw is quant in nature, we aren't going to attempt to explain the rationale behind their holdings. Also note that they literally hold a ton of positions. After all, their top holding makes up ony 1.25% of their entire portfolio. They have numerous positions that only comprise of < href="">portfolio tracking series in which we're tracking 35+ prominent funds. We've already covered:

We cover a new hedge fund each day and you can see the complete list of hedge fund portfolios here.

Peter Thiel's Clarium Capital: Investor Letter (Market Commentary)

Just wanted to share this great read from Peter Thiel's global macro hedge fund Clarium Capital. Their latest investor letter is entitled 'The Wonderful Wizard of Oz' where they lay out some interesting market commentary. If you've missed it in the past, we've covered Clarium's equity portfolio as well as their detailed performance breakdown from February 2009. Enjoy:

(Email & RSS readers may need to come to the blog to view the slidedeck)

Monday, April 20, 2009

Raj Rajaratnam's Hedge Fund Galleon Group: 13F Filing Q4 2008

This is the 4th Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings preface.

Next up is Galleon Group. Galleon was founded by Raj Rajaratnam in 1997 and currently manages in excess of $7 billion. Raj previously worked for Needham & Company, and when he left was responsible for a compounded rate of return of 37% over 4 years while overseeing $250 million. Raj received a Bsc in Engineering and then an MBA in Finance from the University of Pennsylvania. And, in 2009 we saw that Raj's accomplishments have paid off as he is on Forbes' billionaire list. Galleon Group's Buccaneer fund was up 13.39% as of late February 2009. Additionally, their Diversified fund was up 9.87% through the same time period, as noted in our January & February hedge fund performances (March '09 numbers here).

Taken from their website, the Galleon Group “manages a series of funds that specialize in the technology and healthcare industries. Currently The Galleon Group manages five different long/short equity funds: Technology, Healthcare, New Media (Internet), Communications and Life Sciences. Galleon’s philosophy and approach differs from that of other hedge funds in the fundamental belief that it is possible to deliver superior returns to our investors without employing leverage. Combine strong fundamental investment analysis with superior trading capability Galleon places a strong emphasis on both fundamental investment analysis and trading. This enables us to identify companies with superior long-term growth prospects while maintaining the flexibility to profit from short-term market fluctuations.”

The following were their long equity, note, and options holdings as of December 31st, 2008 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):
S&P500 (SPY) Calls, SAP AG (SAP) Puts, Intel (INTC) Puts, Bank of America (BAC) Calls, PNC Financial (PNC), Wyeth (WYE), Atmel (ATML), QQQ (QQQQ), Semi Conductor ETF (SMH) Calls, Genentech (DNA), American Eagle Outfitters (AEO), Yahoo (YHOO), Starbucks (SBUX), FTI Consulting (FCN), AK Steel (AKS), Steel Dynamics (STLD), Schering Plough (SGP), America Movil (AMX), CIT Group (CIT), Amphenol (APH), Maxim (MXIM), Fedex (FDX), NRG Energy (NRG), AT&T (T), Lam Research (LRCX), Kellogg (K), Compuware (CPWR), Shaw Group (SGR), Linear Technology (LLTC), & Ascent Media (ASCMA)

Some Increased Positions (A few positions they already owned but added shares to)
United States Oil Fund (USO): Increased by 14,217%
Yingli Green Energy (YGE): Increased by 755%
Ultrashort Real Estate (SRS): Increased by 537%
Sandisk (SNDK): Increased by 400%
Corning (GLW): Increased by 313%
Seagate (STX): Increased by 120%
Semiconductor HOLDRS (SMH): Increased by 95%
Advanced Micro Devices (AMD) Bond: Increased by 68%
Ishares China (FXI): Increased by 58%
Western Digital (WDC): Increased by 44%

Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Nokia (NOK): Reduced by 85%
Apple (AAPL): Reduced by 78%
Synaptics (SYNA): Reduced by 77%
Netapp (NTAP): Reduced by 76%
Qualcomm (QCOM): Reduced by 75%
Applied Materials (AMAT): Reduced by 72%
SPDR S&P500 ETF (SPY): Reduced by 52%
Amag Pharma (AMAG): Reduced by 45%
Microsoft (MSFT): Reduced by 43%
Electronic Arts (ERTS): Reduced by 43%
Marathon Oil (MRO): Reduced by 41%
First Solar (FSLR): Reduced by 40%
Mylan (MYL): Reduced by 40%

Removed Positions (Positions they sold out of completely)
Humana (HUM), Xilinx (XLNX), Qualcomm (QCOM) Calls, Oil Services (OIH) Puts, F5 Networks (FFIV), Cigna (CI) Puts, Shire (SHPGY), Walmart (WMT), Citigroup (C) Puts, Halliburton (HAL) Puts, Apple (AAPL) Calls, Marvell (MRVL), Eli Lilly (LLY) Calls, Advanced Micro Devices (AMD) Calls, Cisco Systems (CSCO) Puts, Transocean (RIG), SPDR Gold Trust (GLD), Intel (INTC), Eli Lilly (LLY), Analog Devices (ADI), Baidu (BIDU), People Support (inactive), Mastercard (MA), Select Sector Financials ETF (XLF), & Advanced Micro Devices (AMD)

Top 15 Holdings (by % of portfolio)

  1. SPDR S&P500 ETF (SPY): 20.4% of portfolio
  2. S&P500 (SPY) Calls: 7.6% of portfolio
  3. SAP AG (SAP) Puts: 3.96% of portfolio
  4. Intel (INTC) Puts: 3% of portfolio
  5. Bank of America (BAC) Calls: 2.1% of portfolio
  6. Advanced Micro Devices (AMD): 2.1% of portfolio
  7. United States Oil Fund (USO): 2.1% of portfolio
  8. Microsoft (MSFT): 1.97% of portfolio
  9. PNC Financial (PNC): 1.8% of portfolio
  10. Wyeth (WYE): 1.7% of portfolio
  11. Apple (AAPL): 1.66% of portfolio
  12. Atmel (ATML): 1.66% of portfolio
  13. QQQ (QQQQ): 1.6% of portfolio
  14. Semiconductor HOLDRS (SMH): 1.48% of portfolio
  15. Semi Conductor (SMH) Calls: 1.48% of portfolio

While they hold various puts and calls on numerous securities throughout their portfolio, their large position in SPY has to have paid Galleon off, assumming they held through the recent equity rally. At 20% of the portfolio, it is/was a serious position for them and Galleon's performance numbers so far this year have been quite solid. It will be very interesting to see what they've done with such a large position come the next batch of 13F filings. Like almost all of the other hedge funds we've covered from Q4 '08, we see that Galleon group was decreasing equity exposure as well. Their assets from the collective long US equity, options, and note holdings were $3.7 billion last quarter and were $1.1 billion this quarter, which is quite a significant drop off. It will be interesting to see if they have re-entered the equity markets in size over the 1st quarter of '09 considering the rally we've seen thus far in the markets. While they do have a large percentage of their portfolio in SPY, they had a relatively low portion of their assets under management exposed to equity markets as of this filing. As always, this will all be revealed in the next round of 13F filings coming due soon. This is just one of many funds in our hedge fund portfolio tracking series in which we're tracking 35+ prominent funds. We've already covered:

We cover a new hedge fund each day and you can see the complete list of hedge fund portfolios here.