Thursday, June 30, 2011

Last Chance To Save On Our Newsletter, Prices Go Up Tomorrow!

Just a head's up that today is your last day to lock-in the low introductory prices on our premium Hedge Fund Wisdom newsletter. Be sure to download a free past issue to see what you're missing.

New Prices Tomorrow: $299 per year or $89 per quarter

Last Chance Prices Today: $199 per year or $60 per quarter

Save 33% off the new prices instantly!

Hundreds of other Market Folly readers have locked in these low prices. Our current issue reveals the portfolios of 25 top hedge funds and features analysis of Expedia (EXPE), Yahoo! (YHOO), MetLife (MET), Best Buy (BBY), and Seagate Technology (STX).

Take advantage of these savings before it's too late and click the 'subscribe' button below. When the next page loads, look for the link to "pay using your credit or debit card" at the bottom.

1-Year Subscription (4 issues): $199 per year

Quarterly Subscription: $60 per quarter

If you would like to pay via check, please email us:

Eton Park Capital Opens Position in 3Legs Resources

Eric Mindich's hedge fund firm Eton Park Capital has opened a brand new position in 3Leg Resources. According to a UK regulatory filing made on June 28th, Eton Park now own 3.49% of 3Legs' outstanding shares.

3Legs Resources is involved in the exploration and development of unconventional oil and gas resources with a particular focus on shale gas in Europe. Poland is the group's main country of operation.

The company was admitted to trading on London's AIM market on June 14th, so it seems likely that Eton Park acquired their shares via the placement.

For other activity from Eton Park, we've covered the reduction in their Airgas (ARG) position.

What We're Reading ~ 6/30/11

Top ten perks of the 2011 proxy season [Footnoted]

Hedge fund setups: small teams versus sector heads [Bronte Capital]

Gold's investment attributes [AAII]

PIMCO loads up on muni-bonds backed by tobacco companies [Barron's]

Seahawk Drilling: value in bankruptcy? [Oddball Stocks]

Some hedge funds picked up Seahawk shares in the past [Market Folly]

Hedge fund persistence (.pdf download) [Financial Analysts Journal]

Investors' new worry: is there Greek debt in money market funds? [WSJ]

Why some pros still believe a big stock rally is coming [CNBC]

Direct hedge fund investments boosting consulting business [Pensions & Investments]

The $100 million ATM receipt [Dealbreaker]

Audio: angry shareholder confronts Carol Bartz @ Yahoo meeting [Techcrunch]

Tuesday, June 28, 2011

Nelson Peltz's Trian Fund Reveals Kraft (KFT) Stake

Nelson Peltz's Trian Fund Management just filed an amended 13F with the SEC and in it they reveal a stake in Kraft (KFT).

The new disclosure shows Trian owning 12,176,335 shares of KFT as of March 31st, 2011. Adding this data to their original filing, Trian's KFT position represented 18.3% of their reported assets at the time.

Bill Ackman's Pershing Square Capital also owns a sizable stake in KFT and likes the opportunity for organic growth and margin expansion. You can view Pershing's presentation on Kraft here.

Nelson Peltz's business partner Peter May recently laid out Trian's bullish case for Tiffany & Co (TIF) at the Ira Sohn Investment Conference as well. In the past, we've also detailed some of Trian's portfolio activity.

Omitting Positions From 13F Filings

Trian Fund Management omitted the Kraft position in their original 13F filed on May 16th which included a note that reads, "confidential information has been omitted from this Form 13F report and filed separately with the Commission."

Trian most likely arranged this treatment with the SEC because they were still in the midst of acquiring their position and felt public disclosure would boost prices. Other large investors have utilized this technique in the past, with the most notable being Warren Buffett.

Also, we recently detailed a scenario where Bill Ackman's Pershing Square Capital filed information on their Family Dollar (FDO) position confidentially with the SEC and released the info to the public at a later date. It seems more and more prominent funds are being granted this treatment by the SEC so we'll have to monitor a potential growing trend.

Jason Mitchell of GLG Partners on Investing in Sustainability

Jason Mitchell of GLG Partners was recently named one of Institutional Investor's 2011 rising hedge fund stars. He appeared on CNBC to talk about sustainable picks as well as how he approaches socially responsible investing.

He ponders, "What is sustainability? What is the opportunity set around that? And how we've defined it is: sustainability is the investment required to address demographic, environmental and social change."

He says there are around 8-10 sectors that reflect that, mentioning healthcare, education services, and agriculture.

Regarding healthcare specifically, Mitchell notes that "it's defensive, there's value, there's a lot of optionality, but even outside of the US, we're sitting on the cusp of a really interesting start of privatization in Germany ... probably two-thirds of German public hospitals are losing money and as a result, under investing. And the government is slowly, very deliberately and thoughtfully privatizing some of that and there are two companies out there. I mean, these are mid to large cap companies and they know how to run it. They reinvest, increase doctor count, and as a result get a more efficient balance sheet."

Embedded below is Mitchell's video interview with CNBC (email readers need to come to the site to watch the video):

We've also posted up an interview with another 2011 hedge fund rising star: Grandmaster Capital's Patrick Wolff who says that China is a debt-fueled investment bubble.

Crispin Odey's Latest Market Commentary: Stockpicking Is Still Working

Crispin Odey of UK hedge fund Odey Asset Management is out with his most recent market commentary, advocating that it is still a stockpicker's market.

Earlier this morning we posted that Odey started a stake in RSM Tenon and his missive below reveals additional purchases in shares of AXA and Zurich Financial.

His commentary also draws comparisons between the cost of home ownership in the US and UK and he implies that house builders are good value in the UK.

Crispin Odey writes,

"Over a month most of the macro-economic news has appeared to be disappointing. The unemployment rate in the USA has failed to fall, China has slowed down, the Japanese tsunami has turned out to have a greater influence on world industrial production than was hoped and banks have produced worse numbers than anticipated. The stockmarkets are down, government bonds are up and people are generally more nervous.

Equity markets have performed better than I could have expected in the face of these uncertainties, especially with Greece still being a problem. Stock picking is still working.

Our thesis of steamy convergence of third world to developed world incomes remains the template by which we measure recovery. The overheating of the emerging market economies, thanks to the rise in energy costs, has now been followed by a slow down but we still remain happy that the 20% wage increases in emerging markets against the flat wage growth in the west will continue to power world growth. The 5% cost inflation in the west that we suffer for now, will ultimately rebalance the world economy.

I continue to find companies to invest in. This quarter saw Henri de Castries of Axa approve the sale of their Canadian life business, and pull out of the life business in the UK, too. With such a new commitment to a 12% return on capital across all business lines so evident in management's mind, a discount to book value of 25% seems harsh. Meanwhile Zurich Financial, who have long practiced virtue, yields 8% in Swiss Francs.

Banks are as yet not allowed to have a business model but they are certainly cheap enough if a business model evolves in the future. House price moves in the USA which have ensured that the average house sells on only 2.4 times disposable incomes makes this an interesting market for bottom feeding. The ending of Fannie Mae / Freddie Mac's reign in the third quarter of this year should allow commercial banks to re-enter this market. Even if net interest margins rose to 400bp, buyers would still be paying less than they would be if they were renting, and that after paying a 4% redemption yield!

In the UK, affordability is still a problem with house prices 4.4 times disposable income vs. USA's 2.4 times, but interestingly prices only reflect the fact that in the USA, mortgage repayments include a 4% repayment of principal and so average cash costs are 7% of 240 or 16.8% of disposable incomes. In the UK, interest only mortgages are around 4%, and 4% of 440 =17.6% of disposable incomes. Rent typically costs around 22% of disposable incomes. So in both countries it is cheaper to own than to rent, provided that interest rates do not rise before wages rise. Since this is our view it makes sense to investigate further.

House building is running at around 110,000 down from 220,000 three years ago. Supply is running far behind national demand. House prices are no longer at a premium to old house prices, despite much lower running costs. With the house builders you are seeing 27% profit margins of 2007 now down to 7%, thanks to the need to swallow a 10% loss on 3 year old land banks. The shares are typically trading on 70% of sales, 10 times pre-tax profit. New land purchases at lower prices, should allow margins to rise to 17%. To find a business which is doing okay now, when real wages are falling, and not having to overpay, makes me excited. The day that we become competitive globally, these house builders should benefit from rising wages.

Meanwhile, the good news with the fund is that companies in our portfolio continue to be bid for. News of Avis, the American 'parent', bidding 60% more than the last share price for its European 'child', was welcome news for a holding that was worth just over 1.3% of the fund. No hooks, no fish. 31st May 2011."

For more insight from this hedge fund manager, we've also previously posted up Odey's thoughts on agricultural commodities and farming.

Odey Asset Management Open RSM Tenon Group Position

Crispin Odey's UK hedge fund Odey Asset Management has opened up a position in RSM Tenon Group (LON: TNO). Per trading on June 23rd, this brand new position is equivalent to 5% of RSM's outstanding shares.

The disclosure was made on June 27th and indicates the position was acquired via the contract for difference (CFD) market. We've also just posted up Odey's latest market commentary where he says it's still a stockpicker's market.

UK-based hedge funds have been busy as of late as Lansdowne Partners was out buying Mwana Africa as we detailed last week.

Per Google Finance, "RSM Tenon Group PLC, formerly Tenon Group PLC, provides a range of professional and business services. The Company has five segments: audit, taxation and advisory; turnaround and corporate recovery; risk management; financial management, and specialist tax. It provides solutions to clients that range from individuals and entrepreneurially-led owner-managed businesses to corporations and public sector organizations."