John Burbank's Passport Capital Hedges With ETFs, Options: 13F Filing ~ market folly

Monday, March 1, 2010

John Burbank's Passport Capital Hedges With ETFs, Options: 13F Filing

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund 13F filings.)

Next up is John Burbank's hedge fund firm Passport Capital. Burbank founded the San Francisco hedge fund in 2000 and they use sector specific and macroeconomic analysis to select their investments. Once they have identified potential themes, they'll drill down to find specific companies that can benefit.

Burbank has over a decade of experience in markets having previously worked as a consultant and as a director of research at ValueVest Management. His educational background includes an undergraduate degree from Duke University and an MBA from Stanford University. Passport previously had a track record of gaining 27% annually, but like many other funds had a rough 2008.

Previously, we've detailed a lot of investment resources out of Passport including:

- Passport's rationale for owning physical gold
- Passport's recent Agriculture Fund investor letter
- The hedge fund's case for agriculture

The positions listed below were Passport's long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. All holdings are common stock unless otherwise denoted.

Brand New Positions
iShares S&P 500 (SPY) Puts
iShares Emerging Markets (EEM) Puts
CF Industries (CF) Calls
US Steel (X) Calls
Dr Pepper Snapple (DPS) Calls
Barrick Gold (ABX)
CVS Caremark (CVS)
Materials (XLB) Puts
Terex (TEX) Calls
Barrick Gold (ABX) Calls
UnitedHealth (UNH)
Illumina (ILMN)
Ultrashort Crude Oil (SCO)
News Corp (NWSA)
Boston Scientific (BSX)
Small Cap Bear 3x (TZA)

All the rest of their new positions were each less than 0.5% of reported assets: Ensco (ESV), Tesoro (TSO) Puts, Knight Capital (NITE), Rowan (RDC), Nuvasive (NUVA), CF Industries (CF), Medtronic (MDT), Dollar Tree (DLTR), Knight Capital Group (NITE) Calls, Mosaic (MOS) Calls, National Oilwell Varco (NOV), & Omnivision (OVTI)

Increased Positions
Proshares Ultrashort Real Estate (SRS): Increased by 23,451% (was previously a tiny position)
Perfect World (PWRD): Increased by 971%
iShares S&P 100 (OEF) Puts: Increased by 356%
Onyx Pharma (ONXX) Calls: Increased by 100%
Janus Capital (JNS) Puts: Increased by 100%
US Steel (X): Increased by 78.9%
Discover Financial (DFS) Puts: Increased by 20%
Dr Pepper Snapple (DPS): Increased by 17%

Reduced Positions
Wendys Arbys (WEN): Reduced by 47.4%
Mckesson (MCK): Reduced by 5.23%
Teva Pharma (TEVA): Reduced by 2.3%

Removed Positions (Sold out completely):
Materials (XLB) Puts
PNC Financial (PNC) Puts
Wells Fargo (WFC) Puts
Covidien (COV)
Cephalon (CEPH)
Pfizer (PFE)
Las Vegas Sands (LVS) Calls
Golar LNG (GLNG)
Onyx Pharma (ONXX)
Myriad Genetics (MYGN)
Gilead Sciences (GILD)
Wright Medical (WMGI)
Amag Pharma (AMAG)

The rest of their sold positions were each less than 0.5% of their reported assets: Stryker (SYK), Starent Networks (STAR), Activision Blizzard (ATVI), Momenta (MNTA), Petrohawk (HK), Beazer Homes (BZH), Aeropostale (ARO), Hovnanian (HOV), Sanderson Farms (SAFM), BRF Brasil Foods (PDA), Pride (PDE), Impax Lab (IPXL), Weatherford International (WFT), EHouse (EJ), CKE Restaurants (CKR), & Ship Finc (SFL)

Top 15 Holdings by percentage of assets reported on 13F filing

  1. SPDR S&P 500 (SPY) Puts: 15.79%
  2. iShares S&P 100 (OEF) Puts: 14.4%
  3. iShares Emerging Markets (EEM) Puts: 12.23%
  4. CF Industries (CF) Calls: 8.21%
  5. US Steel (X) Calls: 5.77%
  6. Dr Pepper Snapple (DPS): 4.58%
  7. Onyx Pharma (ONXX) Calls: 2.64%
  8. US Steel (X): 2.64%
  9. Dr Pepper Snapple (DPS) Calls: 2.55%
  10. Barrick Gold (ABX): 1.85%
  11. Perfect World (PWRD): 1.62%
  12. Mckesson (MCK): 1.46%
  13. AK Steel (AKS): 1.29%
  14. Wendys Arbys (WEN): 1.16%
  15. CVS Caremark (CVS): 1.15%

It appears that John Burbank's hedge fund Passport Capital utilizes exchange traded funds (ETFs) and options for hedging purposes as their top three holdings are all put positions on indexes. This falls directly in line with Goldman Sachs' recent research where they found hedge funds mainly use ETFs as a hedging tool. Additionally, you'll note that they use options to express a lot of their position views as well. Their largest actual equity position is in Dr. Pepper Snapple (DPS) and they additionally own calls on the name as well.

Assets reported on the 13F filing were $2.2 billion this quarter compared to $1.2 billion last quarter, over a 70% increase in exposure which is nothing to sneeze at. (Remember that these filings are not representative of the hedge fund's entire base of AUM). So, the vast majority of their portfolio activity was via completely selling out of some names and starting brand new positions in equities and options.

Passport is definitely focused on the global growth and natural resources themes with positions in steel companies, agriculture plays, and gold plays. Keep in mind that Passport also has many commodities positions that won't show up on the 13F filing, including a large physical gold position. (They've previously outlined their rationale for owning physical gold). Overall, we track Passport to see which sectors they are flocking to and what kind of exposure they have.

We'll be tracking 40+ prominent funds in our fourth quarter 2009 hedge fund portfolio tracking series. We've already covered Seth Klarman's Baupost Group, Mohnish Pabrai's Investment Fund, Carl Icahn's hedge fund Icahn Partners, David Einhorn's Greenlight Capital, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, David Tepper's Appaloosa Management, Warren Buffett's portfolio, John Paulson's hedge fund Paulson & Co, Lee Ainslie's Maverick Capital, Dan Loeb's Third Point, Eddie Lampert's RBS Partners, David Ott's Viking Global, and Chris Shumway's hedge fund Shumway Capital Partners, Chase Coleman's Tiger Global, Philip Falcone's Harbinger Capital Partners, Roberto Mignone's Bridger Management, and Thomas Steyer's Farallon Capital. Check back daily for our new updates.

blog comments powered by Disqus