Friday, May 22, 2009

The Ivy Portfolio: How to Invest Like the Top Endowments By Mebane Faber (Book Review)

We recently read through Mebane Faber and Eric Richardson's new book The Ivy Portfolio and thought it would be prudent to start off a book review series here at Market Folly. And, what better book to kick things off with than one that details how to invest like the top endowments and institutions.

Many readers may already be familiar with Mebane, as he is the co-founder of Alphaclone, the hedge fund portfolio replication tool we've covered extensively on the blog before. Additionally, Mebane is the portfolio manager for Cambria Investment Management, author of the well known World Beta blog, and has appeared in numerous financial publications. Now, to the review!

Simply put, The Ivy Portfolio details how you as an investor can replicate the returns of some of the top endowments in the country. And, you can even do so with as few as five exchange traded funds (ETFs). The book divulges the simple principles and techniques necessary to replicate their success. In addition to this focus, Mebane and Eric also cover the worlds of alternative investments as an asset class and active management, each in their own section. In terms of hedge funds and private equity as asset classes, they highlight that there is no perfect substitute for investors that cannot access the real thing. (We strongly concur and have previously written about how various exchange traded & mutual funds out there trying to replicate hedge funds leave much to be desired). The last section of the book covers active management and the use of a timing model with the 10-month moving average to avoid bear markets. As you can see, the book offers multiple flavors to sample.

We're no stranger to tracking institutional holdings, so we'd be lying to you if we said we didn't go straight to sections that deal with hedge funds. And, we found compelling content explained in a concise manner. The book includes a section entitled Following the Smart Money, where Mebane and Eric discuss how to use 13F filings to track some of the smartest hedge funds in the game (which Market Folly readers should be very familiar with). They proposition that, "If someone told you that you could have your portfolio managed by Warren Buffett, you would be interested, right?" And, almost everyone out there would say yes.

Following the smart money for free is easy, so why not do it? The Ivy Portfolio walks you through what a 13F filing is, the benefits of using them, and how to track hedge funds through the SEC. And, the book also focuses on three case studies, examining Warren Buffett, David Einhorn (Greenlight Capital), and John Griffin (Blue Ridge Capital). Readers of the blog will of course be familiar with all three of those names. The book walks you through how to do what we here at Market Folly do each day: track the 'smart money.' As mentioned earlier, Mebane has also taken it one step further by replicating their portfolios and gains with the Alphaclone web-based software.

We found The Ivy Portfolio to be succinct, educational, and a great read for those who love investing. The book has sections geared towards numerous types of investors, so everyone is bound to find something they like. Investors using asset allocation will love the endowment section, those curious about alternatives will enjoy the private equity and hedge fund section, and active investors will love the timing model. The main thing to take away here is that regardless of your background or investment methodology, you will learn something. This book teaches you to be a better investor by helping you learn from some of the best out there with proven performance. What's not to love about that?

There's really only one thing we can say: If you enjoy reading the content on Market Folly, then you will thoroughly enjoy reading The Ivy Portfolio. That's all there is to it.

Gold Technical Analysis Video

In light of the fact that hedge fund manager John Paulson recently bought tons of gold and gold miners, we thought it would yet again be prudent to examine what the technicals are saying about the metal this time around. Is it time to pick some up? Check out the video here.

Although Paulson & Co have said they bought the gold as a hedge, we've noticed a confluence of smart minds flocking to large gold positions over the past few quarters. At one point or another, David Einhorn of Greenlight Capital, Eric Mindich of Eton Park Capital, and Dan Loeb of Third Point have all been in gold (among many other funds we're sure). On one hand, Loeb was using it as a 'hideout' and safety net from market irrationality and volatility, and has since sold out, as noted in his investor letter. Einhorn, on the other hand, holds gold due to future inflationary fears.

The guys over at MarketClub have pulled up the charts in their latest free video and are seeing some possible consolidation signs in the metal. Check out some technical analysis on Gold here.

What We're Reading 5/22/09

In an effort to try and provide viewpoints contrary to our own, we want to highlight this particular article. We have been bearish on the REIT sector from a macro perspective as leverage takes it's toll and massive debt maturities come due. Not to mention, we keep seeing and hearing about 'for lease' signs literally all over the place. This article takes a different view and says now is the time to Buy REITs [DailyWealth]

Baltic Dry Index not a good leading indicator [Research Reloaded]

The Master of Money (Warren Buffett) [by Michael Lewis, on The New Republic]

And also, congrats to the StockTwits guys on their series of funding [AllThingsD]

Thursday, May 21, 2009

Blue Ridge Capital's Behavioral Finance Recommended Reading List

This is the fourth and final installment of hedge fund Blue Ridge Capital's recommended reading list. Previously, we've revealed Blue Ridge's recommended Analytical Reading List, their Historical/Biographical List, and their Economics List. This week, we'll turn to their recommended Behavioral Finance reads.

Long-time blog readers will know that we track Blue Ridge because they are the pure definition of a 'Tiger Cub'.   John Griffin was Julian Robertson's right-hand man while at Tiger Management before founding Blue Ridge.

Behavioral Finance

Investment Psychology Explained: Classic Strategies to Beat the Market by Martin Pring: A 'back to basics' book on how to beat the market.

Beyond Greed and Fear by Hersh Shefrin: A look at how bias, perception, and psychology run the stock market. 

The Money Game by Adam Smith: Book hypothesizing that the stock market is just a game; explains technical analysis, fundamental analysis, psychology, and more. 

Influence: The Psychology of Persuasion by Robert Cialdini: Understanding the foundation of persuasion and marketing.

The Inefficient Stock Market by Robert Haugen: 'What works and why.' This book looks at how the market is inefficient and argues that financial models based on economic behavior cannot explain certain aspects of (often irrational) market behavior.

Why Smart People Make Big Money Mistakes by Gilovich & Belsky: Close examination of the psychological reasons behind how and why people invest, spend, and save.

The Psychology and Judgment of Decision Making by Scott Plous: Examination of your own psychology of decision making.

How We Know What Isn't So by Thomas Gilovich: Focuses on errors humans make when forming opinions and trying to comprehend things.

Decision Traps: 10 Barriers to Brilliant Decision Making by J. Russo: Training to become a good decision-maker (one of the most important business skills out there). 

Extraordinary Popular Delusions and the Madness of Crowds by Tobias & McKay: A book discussing "the herd mentality" at its finest, where the masses collectively assemble and follow each other like lemmings.

Hare Brain, Tortoise Mind by Guy Claxton: How to handle complex situations by way of perception, problem solving, and creativity. 

The Moral Animal: Why We Are the Way We Are by Robert Wright: Evolutionary psychology and human nature.

That finishes up the Behavioral Finance category and also concludes Blue Ridge's recommendations. If you've missed some of our past lists, here is our archived compendium.

Recommended Reading Lists

- Blue Ridge Capital's Recommended Analytical Reading

- Blue Ridge's Recommended Historical/Biographical Reading

- Blue Ridge Capital's Recommended Economics Reading

- Fundamentals

- Technical analysis

- Good Market Reads

- Gurus

- John Burbank's hedge fund Passport Capital: Suggested Reading List

Background on Blue Ridge:

Griffin is a Tiger Cub, and as mentioned above, he was Julian Robertson's right hand man. So, needless to say, he knows his stuff. Blue Ridge seeks absolute returns by investing in companies who dominate their industries and shorting the companies who have fundamental problems. While hedge funds typically closely guard their short positions, we've gotten a sneak peek in the past at what Blue Ridge had been shorting. Both Griffin at Blue Ridge and Lee Ainslie over at Maverick Capital like to effectively hedge with a solid balance of both long and short positions (like a true hedge fund... not like some of the crazy funds these days that aren't truly hedged). Griffin attended the University of Virginia for undergrad and received his MBA from Stanford.

S&P500 Chart: Wild Market Swings 2007-2009

Great chart from The Chart Store that illustrates just how volatile and seesaw-ish this market has been over the past 2 years. There have been rapid, massive declines and equally massive rallies. The current rally from the lows in March 2009 extends over 39%. Maybe we should highlight contrarian signals more often, as we did back in early March. Those signals we highlighted turned out to be a great barometer for a short-term turn in the markets.

Buy when there is blood in the streets and pessimism abounds. Sell/short when everyone is plunking money down in the market thinking they're invincible.

The ultimate question now is, what's up with the current action? Typical bear market rally? Foundation for something constructive? Time will tell.

(click to enlarge)

Wednesday, May 20, 2009

Stephen Mandel's Lone Pine Capital Still Likes Qualcomm, Visa: 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.

The third fund we're covering is Lone Pine Capital, managed by Stephen Mandel Jr. His $7 Billion fund has returned over 25% annually since its inception in 1997. The term 'lone pine' comes from Mandel's days at Dartmouth College, where the school has a historical lone pine tree. Although Mandel has a solid track record, last year was rough on them (and many others), as noted in our list of 2008 year end hedge fund performance numbers. Why is Mandel worth following you might ask? Well, he served as a consumer/retail analyst for Tiger Management back in the day for legendary investor Julian Robertson. (Robertson's proteges/right-hand men have been nicknamed the "Tiger Cubs" and many have started their own funds).

So, not only has Mandel learned from one of the best, but he has put up some very solid returns himself. Mandel is well versed in the ways of finding undervalued companies and his funds typically like to sniff out solid companies with good management that are trading below their intrinsic value. We've already covered another one of the Tiger Cubs for Q1 2009 in Andreas Halvorsen's Viking Global. And, below, you'll definitely see some similarities between their two portfolios.

Recently, Lone Pine was named to Alpha's 2009 hedge fund rankings list, where they were ranked 21st for 2009, slipping from being 18th the year prior. Lone pine was pretty busy filing 13G's back in March of this year, where they disclosed positions in Strayer, Deckers, and Ctrip. All three of these positions are also now reflected in their filing below.

The following were their 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):
Apollo Group (APOL)
Coca Cola (KO)
Deckers (DECK)
Mead Johnson Nutrision (MJN)
Medco Health (MHS)
Philip Morris International (PM)
PepsiCo (PEP)
Strayer (STRA)
VistaPrint (VPRT)

Some Increased Positions (A few positions they already owned but added shares to)
Fomento Economico (FMX): Increased by 380%
Las Vegas Sands (LVS): Increased by 67.8%
SPDR Gold Trust (GLD): Increased by 50%
Coach (COH): Increased by 42%
JPMorgan Chase (JPM): Increased by 26%
Carnival Paired CTF (CVC1): Increased by 7%

Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Sears (SHLD) Puts: Reduced by 84%
Activision Blizzard (ATVI): Reduced by 67.8%
Dolby Labs (DLB): Reduced by 56.7%
MSC (MSM): Reduced by 38.9%
XTO Energy (XTO): Reduced by 32.2%
Google (GOOG): Reduced by 29.9%
Precision Cast Parts (PCP): Reduced by 27.9%
Mastercard (MA): Reduced by 28%
Priceline (PCLN): Reduced by 27.8%
America Movil (AMX): Reduced by 22%

Removed Positions (Positions they sold out of completely)
Abercrombie & Fitch (ANF)
Bunge (BG) Puts
Lorillard (LO)
Teradata (TDC)

Top 15 Holdings (by % of portfolio)

  1. Qualcomm (QCOM): 11.07% of portfolio
  2. Visa (V): 7.7% of portfolio
  3. America Movil (AMX): 7.68% of portfolio
  4. JPMorgan Chase (JPM): 6.3% of portfolio
  5. Monsanto (MON): 5.5% of portfolio
  6. Philip Morris International (PM): 5.45% of portfolio
  7. Mastercard (MA): 5.35
  8. Union Pacific (UNP): 4.5% of portfolio
  9. Medco Health (MHS): 3.74% of portfolio
  10. SPDR Gold Trust (GLD) Calls: 3.64% of portfolio
  11. Google (GOOG): 3.13% of portfolio
  12. Priceline (PCLN): 3.11% of portfolio
  13. Fomento Economico (FMX): 3% of portfolio
  14. PepsiCo (PEP): 2.8% of portfolio
  15. Carnival (CVC1) Paired CTF: 2.79% of portfolio

Mandel and Lone Pine definitely show their Tiger Cub background with many of these holdings. They share numerous holdings with other Tiger Cubs, including Andreas Halvorsen's Viking Global. Viking likes both MA and V, and so does Lone Pine. Lone Pine clearly favors V as they brought it up to be their 2nd largest position. Additionally, many of the Cubs hold paired CTF's in Carnival. What is unique about Lone Pine's portfolio compared to other Tiger Cubs is the fact that they still hold AMX. Many other funds used to have large stakes in the name, but they all sold out. Lone Pine, on the other hand, stands by the name and continues to be invested in a big way. So, while all the Tiger Cubs definitely have some similar positions, they each also bring their own unique style and research to their portfolios.

While it is only his 10th largest holding, it is also interesting to note that Mandel has a stake in gold through GLD (via calls). A plethora of prominent hedge fund managers now have positions in this name. Just yesterday, we detailed how John Paulson has built up a large gold position. Another interesting move was Mandel's addition to his LVS position. Even though it is only 1.43% of his portfolio, you have to consider he was looking at this prominent Vegas name as a great value play when it was under $2 a share in March. In terms of positions they dumped, they no longer own Lorillard or Teradata. This is intriguing simply because over the past few quarters, numerous value oriented hedge funds had been accumulating these names. Lone Pine apparently does not see value anymore and has sold completely out of both. It will be interesting to see what the other value players have done with their positions in these names.

Assets from the collective holdings reported to the SEC via 13F filing were $6.1 billion last quarter and were boosted up to $6.5 billion this quarter. 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 and Paulson & Co (John Paulson).

John Paulson Starting Real Estate Recovery Fund

Fresh off of our unofficial 'John Paulson' day on the blog yesterday, we're back again to highlight that Paulson will be going forwards with his Real Estate Recovery fund that will be aimed on investing in distressed assets. Just yesterday we examined Paulson's equity holdings, and now it looks like he's getting ready to make a splash in other asset classes. The fund will manage a few hundred million in its initial capacity (though no cap has been set) and will be managed by Mike Barr. Mike was previously at Lehman Brothers where he has experience in real estate and private equity. Paulson's initial goal is to run the fund for 7 years, investing in both residential and commercial properties. This news comes fresh off the new mortgage-market proposal by Paulson's colleague and ex-portfolio manager, Paolo Pellegrini. The two of them undoubtedly have compelling ideas on how to solve the crisis.

This fund isn't really new news, as we had heard of his proposal a while ago. However, we're finally getting concrete details and the 'green light' that it is ready to go. With his front-row seat to the mortgage and housing crisis, Paulson's timing call might prove to be very prudent. He has played the market perfectly thus far and has already gotten constructive on the sector by buying up the types of assets he was previously shorting (mortgage backed securities). Now, however, he is taking his constructiveness to a new level: by buying outright real estate. Obviously, he has a longer-term time frame in mind and will take his time sorting and sifting through the right deals. But, the fact that he is getting constructive in this arena cannot be ignored.

At the same time, it is also interesting to note his large purchase of gold which we just detailed. The hedge fund firm has said it is merely a hedge for them, as they have a share class denominated in gold. However, his large stakes in both gold and numerous gold miners is intriguing. Paulson may be getting constructive in the real estate arena, but he must still be overall cautious on the economy, the US dollar, or something of the sort. After all, why buy so much gold and so many miners? Either way, it's always interesting to note his major moves and this new fund certainly is classified as such.

Paulson's hedge fund has generated massive returns over the past two years, as he bet against financials and all things subprime. One of his funds was even up 589%. Check out his recent portfolio movements.

Bloomberg Terminal: Command Shortcuts / Cheat Sheet

For those of you who have access to Bloomberg terminals or are trying to learn the ropes, we thought it would be good to post up this resource, courtesy of the Columbia Investment Management Association (CIMA) of the Columbia Business School.

They've gone through and put together a quick .pdf of some key shortcuts and keystrokes to use in a Bloomberg Terminal. This is definitely a great resource for people trying to learn the system or for people who get stuck and can't remember how to access something. Post this cheat sheet up right next to the terminal and you're good to go. (RSS & Email readers will need to come to the blog to view the .pdf).

Bloomberg Cheat Sheet -

Tuesday, May 19, 2009

Paulson & Co (John Paulson) Buys Tons of Gold: 13F Filing 1st Quarter 2009

(click to enlarge)

Since today is pretty much 'John Paulson day' here at Market Folly, we thought it was appropriate to begin with this interesting (yet already outdated) graphic of Paulson's overall winnings. Obviously, he's been quite successful. This post is a part of our 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.

The second hedge fund in our series is Paulson & Co ran by John Paulson. His hedge fund has generated massive returns over the past two years, as he bet against financials and all things subprime. One of his funds was even up 589%. And, in the first part of 2009, he had also profited by shorting UK banks. Although Paulson is obviously one of the main brains behind the operation, there are also many talented individuals there. Unfortunately for Paulson, one of his co-portfolio managers has left to start his own fund, and we'll be keeping an eye on that. At the end of 2008, Paulson's Advantage Plus fund ended the year +37.58%, as detailed in our year end 2008 hedge fund performance post. For more information on how Paulson performed in 2008, be sure to check out their year end letter & report.

Paulson began shorting collateralized debt obligations and buying credit default swaps back in 2005 as he had conviction in his bet. His Credit Opportunities fund launched in 2006 with $150 million aimed to short subprime mortgage backed securities. This fund enjoyed immediate success, causing him to launch the Credit Opportunities II fund. At the end of 2007, the Opportunities fund was up 590% and his Opportunities II fund was up 353%. Such sterling performance led Paulson's hedge funds to be the #1 and #4 funds as ranked in Barron's hedge fund rankings (top 100). Paulson's funds earned this distinction due to their solid 3 year annualized performance metrics. Additionally, Paulson sits at #3 on Alpha's hedge fund rankings list for 2009, which is compiled based on assets under management (aum).

Obviously, such great performance has led to many other accolades for Paulson on a personal level. Recently, Paulson graced Forbes' billionaire list, but that one is almost a no-brainer. More notably, he was among the top 25 highest paid hedge fund managers of 2008. In terms of recent portfolio performance, Paulson's Advantage Plus Fund returned 4.8% through April as noted in our round up of hedge fund performance numbers.

The following were their 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):
SPDR Gold Trust (GLD)
Gold Fields (GFI)
Gold Miners ETF (GDX)
Anglogold Ashanti (AU)
Capital One Financial (COF)
JPMorgan Chase (JPM)
Petro-Canada (PCZ)
Schering Plough (SGP)
Wyeth (WYE)

Some Increased Positions (A few positions they already owned but added shares to)
St Jude Medical (STJ): Increased by 134%
Peoples United Financial (PBCT): Increased by 12%
Kinross Gold (KGC): Increased by 8%

Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Rohm & Haas (ROH): Reduced by 11.5%

Removed Positions (Positions they sold out of completely)
Genentech (DNA)
Istar Financial (SFI)
Merrill Lynch (MER)
NRG Energy (NRG)
National Citty (NCC - inactive, acquired by PNC)
Northern Trust (NTRS)
Teva Pharma (TEVA)
Time Warner Cable (TWX)
Tronox (TRXAQ)
ProShares Ultrashort Financial (SKF)
Wachovia (WB)
Wells Fargo (WFC)

Top 15 Holdings (by % of portfolio)
  1. SPDR Gold Trust (GLD): 30.37% of portfolio
  2. Wyeth (WYE): 13.96% of portfolio
  3. Rohm & Haas (ROH): 13.44% of portfolio
  4. Boston Scientific (BSX): 8.4% of portfolio
  5. Gold Miners ETF (GDX): 6.81% of portfolio
  6. Kinross Gold (KGC): 5.87% of portfolio
  7. Philip Morris International (PM): 3.42% of portfolio
  8. Petro-Canada (PCZ): 2.96% of portfolio
  9. Schering Plough (SGP): 2.26% of portfolio
  10. Mirant (MIR): 2.22% of portfolio
  11. Gold Fields (GFI): 2.21% of portfolio
  12. JPMorgan Chase (JPM): 1.65% of portfolio
  13. Anglogold Ashanti (AU): 1.15% of portfolio
  14. St Jude Medical (STJ): 0.91% of portfolio
  15. Embarq (EQ): 0.81% of portfolio

The first major move that everyone will be talking about is Paulson's big entrance into gold. His position in the Gold Trust (GLD) is brand new and is brought up to a whopping 30% of his portfolio. Now, there are indeed a few caveats with this move: Paulson & Co have said themselves that they have done so as a hedge, as they now own well over 8% of this exchange traded fund (ETF). Their hedge funds have a share class that is denominated in gold (instead of in US dollars or Euros). Still though, that's quite a large hedge to have. Not to mention, Paulson also has a copious amount of gold miners now littered throughout his equity portfolio. Previously, we had posted up when he started his large stake in Anglogold Ashanti. Now though, he has boosted his stake in Kinross Gold (KGC) and he has also started new positions in Gold Fields (GFI) and the Gold Miner ETF (GDX). Gold is clearly the name of the game for Paulson at present. And, such a massive position in gold and gold miners has to be for more than merely a hedge.

One other thing to consider with Paulson's portfolio is that these holdings listed above are only his long equity holdings. The main reason why we bring this up is because the holdings above represent only a piece of his overall portfolio pie. Many of the positions above are merger arbitrage and event driven positions. While his gold stakes may be a large part of the assets disclosed in this filing, they are not quite as big when you compare them to his total assets under management. So, keep that in mind.

As many are already aware, Paulson bet against subprime and made a ton of money. As such, a lot of his holdings are in other markets. And, since the SEC only requires funds to disclose their equity, options, and note/bond positions, there is much of Paulson's portfolio left unseen. Besides any omitted positions in mortgage backed securities or other markets, we also do not get to see Paulson's shorts. The only short positions we can ever see in these filings (as per SEC regulations) are via positions in put options. And, Paulson does not have any such positions.

Another major move Paulson made last quarter was to buy a new stake in Wyeth (WYE). They brought their new WYE position all the way up to their #2 holding, which will turn a few heads. Aside from those major moves, Paulson also still retains the rest of his merger arbitrage style positions in Boston Scientific and Rohm & Haas, which we've covered previously. Additionally, Paulson still holds a position in Mirant (MIR), whom he filed a 13G on back in January.

We also noticed that Paulson essentially swapped out of Merrill Lynch, Northern Trust, Wells Fargo, and Wachovia in favor of Capital One and JP Morgan Chase. While this move is intriguing, it is fairly insignificant (at least at this time). All his financial positions are relatively tiny to his overall portfolio, with JPMorgan being the largest at only 1.65% of their portfolio, which is not saying much. We'll have to monitor this development going forward to see if Paulson is getting constructive here, or mainly using these as proxies for something else in the shorter-term.

Assets from the collective holdings reported to the SEC via 13F filing increased from $6 billion last quarter up to $9.36 billion this quarter. Overall, Paulson is a great fund to keep an eye on simply because they nailed the crisis and have a solid track record. However, much of his portfolio is not present in these 13F filings, so take everything with a grain of salt. If you want to keep an eye on someone else who had worked with Paulson in betting against subprime, then check out our recent piece on Kyle Bass of Hayman Capital, where we divulge his latest prediction.

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, as we've already covered Andreas Halvorsen's Viking Global.

Paolo Pellegrini Proposes Mortgage Solution

Over on Dealbook, there is a fascinating piece up by Paolo Pellegrini. "Who's that?" And, "why should I care?" you ask. Well, Pellegrini was previously a co-portfolio manager at John Paulson's hedge fund Paulson & Co. Pellegrini has since started his own fund, PSQR Management. Needless to say, he is very familiar with the housing and mortgage crisis, as he has been playing it from the investment side with precision. We thought that today would be the perfect day to post up Pellegrini's thoughts, as we've just covered Paulson & Co in our quarterly hedge fund portfolio tracking series.

Pelligrini proposes a market solution complete with bidding and aid from government financing, wherein homeowners and institutions alike can benefit. He writes,

"With more than a fifth of United States homes worth less than their mortgages, restructuring residential debt is the most important step to restore our country to prosperity and economic growth ... The government can assist struggling homeowners, remove bad loans from bank balance sheets and free up credit while utilizing a transparent, competitive process to minimize the taxpayer subside required."

His proposal is lucid and almost a no-brainer. However, such a simple system would ultimately require some complexities in its infancy. While the government searches for solutions, many close to the heart of the matter are voicing their opinion. Hopefully the government is listening. After all, if they should be listening to anyone regarding this matter, it's Pellegrini and Paulson. Those two have played the market pretty much perfectly thus far. And, suggesting an alternative mortgage solution in market form plays directly into their fortes.

Make sure you check out his entire proposal over at Dealbook.

Monday, May 18, 2009

Andreas Halvorsen's Viking Global 13F Filing: First Quarter 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.

We'll start our Q1 '09 coverage with Viking Global. Andreas Halvorsen is one of the many 'Tiger Cub' fund managers we cover here on the blog. 'Tiger Cubs' are the progeny of legendary investor and hedge fund manager Julian Robertson of Tiger Management. Many of the critical members of Tiger started their own funds, and Halvorsen is no different. Halvorsen has taken what he learned/used at Tiger and added his own spice to the value oriented, yet growth at a reasonable price (G.A.R.P.) tolerable investment style. Viking employs a fundamental strategy, using a bottom-up process to pick stocks. In terms of recent performance, They were +0.99% for March, and +9.27% year to date as of that time. We covered Viking and other hedge funds in our March performance update.

Halvorsen attended Williams College and received his MBA from Stanford, while his work history includes stays at Morgan Stanley and Tiger. In Alpha's 2008 hedge fund rankings, Viking was ranked #70 in the world. You can view Viking's most 2008 year end investor letter if you want to look through the eyes of Halvorsen and company.

The following were their 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):
Alliance Data Systems (ADS)
Career Education (CECO)
Charles River Labs (CRL)
Cognizant (CTSH)
CVS Caremark (CVS)
Danaher (DHR)
Google (GOOG)
Lender Processing Services (LPS)
Oracle (ORCL)
Suntrust Banks (STI)
Teleflex (TFX)
Travelers Companies (UHS)
Thermo Fisher Scientific (TMO)
Thoratec (THOR)
Universal Health Services (UHS)
Visa (V)
Walmart (WMT)

Some Increased Positions (A few positions they already owned but added shares to)
Mastercard (MA): Increased by 176%
JPMorgan Chase: Increased by 72%
Invesco (IVZ): Increased by 23%
Qualcomm (QCOM): Increased by 12%

Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
DaVita (DVA): Reduced by 46%
First Horizon National (FHN): Reduced by 45%
Illumina (ILMN): Reduced by 37.5%
Aon (AOC): Reduced by 34%
Apollo Group (APOL): Reduced by 32%
McKesson (MCK): Reduced by 27%

Removed Positions (Positions they sold out of completely)
Alcon (ACL)
Bank of America (BAC)
Axis Capital (AXS)
ITT Educational (ESI)
Kroger (KR)
ModusLink (MLNK)
Renaissance Holdings (RNR)
St Jude Medical (STJ)
Sherwin Williams (SHW)
Verisign (VRSN)
Vulcan Materials (VMC)

Top 15 Holdings (by % of portfolio)

  1. Apollo Group (APOL): 12.67% of portfolio
  2. Mastercard (MA): 12.51% of portfolio
  3. Invesco (IVZ): 8.88% of portfolio
  4. Qualcomm (QCOM): 7.11% of portfolio
  5. Google (GOOG): 5.83% of portfolio
  6. Visa (V): 5.8% of portfolio
  7. Priceline (PCLN): 5.33% of portfolio
  8. JPMorganChase (JPM): 4.12% of portfolio
  9. NRG Energy (NRG): 3.4% of portfolio
  10. Cognizant (CTSH): 3.24% of portfolio
  11. Career Education (CECO): 3.13% of portfolio
  12. MSCI (MXB): 3% of portfolio
  13. DaVita (DVA): 2.7% of portfolio
  14. Macrovision (MVSN): 1.96% of portfolio
  15. Charles River Labs (CRL): 1.87% of portfolio

From Q3 to Q4 of 2008, Viking had some substantial turnover in their portfolio. And, the most recent quarter is no different. In the first quarter of 2009, they sold completely out of 12 names and then started new positions in 18 other names. Last time around, we focused on Viking's decision to sell out of Visa and instead buy Mastercard. Well, this time around, they bought both. Viking re-bought their Visa position and brought it all the way up to their 6th largest holding. Additionally, they boosted their current Mastercard position by an additional 176%. They clearly have conviction in this payment-processing duopoly. (And, so do many other hedge funds for that matter).

Viking also started a new position in Google (GOOG) and brought it up to their fifth largest holding. That about covers all the major moves in the portfolio (besides the names they sold out of completely). Viking's top position remains Apollo Group (APOL). However, they did sell a substantial part of their position from quarter to quarter.

Assets from the collective holdings reported to the SEC via 13F filing were $3.5 billion last quarter and were $3.57 billion this quarter. 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, or get our updates for free via email or for free via RSS Reader.

Barron's Hedge Fund Rankings 2009: Top 100 List

Barron's is out with their annual hedge fund 100 list and we wanted to post up all the media relating to it. They mention that hedge fund assets plummeted from $1.9 trillion to $1.4 trillion throughout the course of 2008. That is a staggering number, but it definitely highlights the real problems the industry had during the year. While redemptions were fierce over the last year, reports are out saying that nearly 80% of redemption activity was high net worth and retail investors, rather than institutions. This will definitely be interesting as it could affect the health of the industry moving forwards. If institutions suddenly drop their allocations to hedge funds, then there will be big ramifications across the industry.

While many funds faltered, there have been a few all-stars over the past three years and Barron's highlights them on their list. Firstly, here's the hedge fund 100 list in it's entirety (RSS & Email readers may need to come to the blog to view the slidedeck). Or, you can download the .pdf here.

There is also a supplemental video below where the author/compiler of the list Jack Willoughby discusses the rankings and the hedge fund industry in its current state:

Barron's breaks down their top 100 hedge fund list by 3 year annualized returns. They rank by individual investment partnerships, so a couple of firms actually have multiple hedge funds on the list (like Paulson & Co, Galleon Group, etc). Barron's list does have a few criteria though, as they require a minimum AUM of $300 million and have excluded funds that invest in a single "sector, country, or region."

Overall though, the list is definitely a "who's who" of the hedge fund elite. John Paulson's Paulson & Co occupies the #1 and #4 slots, with a 62.67% and 46.81% 3 year annualized returns respectively. Of other hedge funds we cover on the blog, Shumway Capital has a fund listed at #11. Fellow Tiger Cub Paul Touradji has one of his funds in the #16 spot.

Some higher frequency trading firms are also high up on the list, including D.E. Shaw's Oculus fund at #21 and SAC Capital's International fund at #17. Noticeably absent from the list though, is Jim Simons' Renaissance Technologies. This is hard to believe, seeing how their prestigious and secretive Medallion fund returned 80% in 2008 and has one of the most pristine track records in all of hedgie-land. Maybe Barron's was tracking Rentec's sub-par performing funds like RIEF, which would explain their absence from the list. Medallion's exclusion, however, makes zero sense.

We've also noted that some funds who focus on macro trends are also ranked pretty highly. Passport Capital (John Burbank) is #24, Sprott Asset Management graces the list at #49, and George Soros' hedge fund is #46. In terms of true global macro firms, Moore Capital Management has a fund listed at #33. Keep in mind that we're just about to start our hedge fund portfolio tracking series, first quarter 2009 edition. We'll be updating the positions and portfolios of many of the funds ranked in the Top 100 to see what they've been up to, so make sure to check back daily.

Barron's isn't the only hedge fund ranking list out there, as Alpha had previously released their 2009 hedge fund rankings. The difference between the two lists is that Barron's is using a 3 year annualized return figure to gauge performance and rank accordingly. Alpha, on the other hand, simply aggregates assets under management (AUM) and then ranks from top to bottom. Obviously, many will argue that Barron's has the better gauge since they are using performance based metrics, and we'd tend to agree. The problem, though, is that they only use a 3 year annualized return. We'd prefer to use a 5 year or even 10 year period. That gets a little bit more complex and complicated as you would have some out-performing funds who only have shorter track records due to their inception dates. Overall though, Barron's and Alpha both present interesting lists.

Don't forget that you can get Barron's for 40% off right now and you can also view their top 100 article in its entirety.

Hedge Fund Portfolio Tracking Q1 2009: 13F Filings

Yep, it's thaaaaaaat time again. Buckle up for a whirlwind of first quarter 2009 hedge fund portfolios. This post is the preface to the series we will be doing in the coming weeks that details what many prominent hedge funds have been up to in the prior quarter.

Four times a year (once each quarter), hedge funds & asset managers with greater than $100 million AUM (assets under management) are required to report to the SEC their long holdings from the previous quarter. These filings do not show the funds' short positions and require them to disclose their long holdings in equity markets. Additionally, they are required to file various puts or calls purchased in the options market as well as notes & bonds. These filings do not cover commodities, currencies, or other markets. So, we just wanted to clarify that for people new to 13f filings. We check these 13F filings quarterly just to get a sense as to where these funds are putting their money. If you just sit down and do some simple number crunching between this quarter's 13F and the one prior, you can see exactly where these funds have been moving their money. And, if you create a cloned portfolio based on these top hedge fund holdings, you can see 17% annualized returns like our custom Market Folly portfolio created with Alphaclone.

Please note that these 13F's should be treated as a lagging indicator simply because the 13F's that are being released currently (May 15th-20th 2009) show the funds' portfolio holdings as of March 31st, 2009. So, in the past month and a half, they could have completely changed their portfolio. But, at the same time, its easy to see which sectors they are flocking to and what their concentrated positions are.

We like to specifically follow equity focused hedge funds as they are the easiest to track. We focus on value based (or growth-at-a-reasonable-price) hedge funds in the hope that they won't experience ridiculously high turnover and thus allow us to somewhat track their movements as they build up concentrated positions. Specifically, we follow the 'Tiger Cubs' (otherwise known as the proteges of former hedge fund Tiger Management legend Julian Robertson). Many of these former proteges/right-hand men have started their own funds and here are the ones we've been following. (Note that all the links below are to the respective holdings from Q4 2008 & will be replaced with the Q1 '09 links as we go along).

- Blue Ridge Capital (John Griffin) - Q1 updated
- Lone Pine Capital (Stephen Mandel) - Q1 updated
- Maverick Capital (Lee Ainslie) - Q1 updated
- Viking Global (Andreas Halvorsen) - Q1 updated
- Tiger Global (Chase Coleman)
- Touradji Capital (Paul Touradji)
- Shumway Capital Partners (Chris Shumway)

Additionally, we also like to follow the Commodities Corporation "offspring" which have gone off to start their own funds and typically employ a global macro strategy.

- Tudor Investment Corp (Paul Tudor Jones)
- Moore Capital Management (Louis Bacon)
- Caxton Associates (Bruce Kovner)

Additionally, we like to follow other "whales" well known for their investing prowess. These include:

- Warren Buffett
- Carl Icahn
- George Soros (Soros Fund Management LLC)

Next, there is an assortment of funds that employ various strategies ranging from activist to global macro and often run concentrated portfolios. We track these funds due to their solid returns over the years, as well as the spotlight that has been cast on a few of them in this turbulent market.

- Atticus Capital (Timothy Barakett) - Q1 updated
- Tremblant Capital (Bret Barakett)
- Clarium Capital (Peter Thiel)
- Pequot Capital Management (Art Samberg)
- Harbinger Capital (Philip Falcone)
- BP Capital (Boone Pickens)
- Paulson & Co (John Paulson) - Q1 updated
- Jana Partners (Barry Rosenstein)
- Eton Park Capital (Eric Mindich) - Q1 updated
- Farallon Capital Management (Thomas Steyer)
- Galleon Group (Raj Rajaratnam)
- Citadel (Ken Griffin)

A few deep value & activist funds:

- Third Point (Daniel Loeb)
- Pershing Square (Bill Ackman)
- Greenlight Capital (David Einhorn) - Q1 updated
- Baupost Group (Seth Klarman) - Q1 updated
- Tontine Associates (Jeffrey Gendell)

For our readers, we also track some quant and highly active trading funds. We do not track these firms to gain insight for portfolio investing ideas. Instead, it's merely for fun because for whatever reason, people like to see what they are doing. It's basically useless to track them due to their quant or high frequency trading nature and none of us could really tell you the rhyme or reason behind any one of their positions.

- SAC Capital (Stevie Cohen)
- D.E. Shaw (David Shaw)
- Renaissance Technologies (Jim Simons)

We also track a few spin-off and newer funds on the scene that are run by managers with storied pasts:

- Conatus Capital (David Stemerman, ex-Lone Pine)
- James Pallotta's Raptor Capital Management (ex-Tudor)
- Alyeska Investment Group (Anand Parekh, ex-Citadel)

And, a few other funds we're beginning to track due to high demand from our readers. We receive a lot of suggestions and take the ones we see recurring the most and add them:

- Passport Capital (John Burbank)
- Sprott Asset Management (Eric Sprott)
- Balyasny Asset Management (Dmitry Balyasny)
- Hilltop Park Fund (Stanley Shopkorn, ex-Moore)

Over the coming weeks we'll touch on some of the important position moves these funds and whales have made (new positions, removed positions, etc). That list of funds brings our coverage to 40+ prominent hedge funds. If you would like to see a specific hedge fund covered here on, post up a comment in the comments section below. We're always looking to add more funds that readers would like to see, so please drop in your suggestions. Each quarter we'll add a few more funds that the overwhelming majority of readers want to see.

Last, but not least, we're always looking for people to help us cover these hedge funds, as it gets to be a bit tedious (this is a one-man show here). If you're interested in helping out posting up 13F information, please get in contact with us at the top of the site. The hedge fund tracking series 1st quarter 2009 edition starts today, so spread the word and check back daily.

Technical Analysis & Trading Ideas: Weekly Watchlist Video

Here's a video with some good technical analysis and pricing patterns in the current market from the Option Addict. If you're looking for some trading ideas, this is a great resource. Here's his weekly watchlist for 5/18/09:

The video was having problems playing earlier, so if it does not work, try watching it here.
(Email readers will have to come to the blog to view the video).