Hedge Fund Tracking: Harbinger Capital's 13F Filing (Managed by Philip Falcone) ~ market folly

Thursday, October 2, 2008

Hedge Fund Tracking: Harbinger Capital's 13F Filing (Managed by Philip Falcone)

(Note: Before reading this update, make sure you check out the preface to the series I'm doing on Hedge Fund 13F's here).

It's time to continue the Hedge Fund tracking series. If you've missed them, I've already covered Jeffrey Gendell's Tontine Partners, Bret Barakett's Tremblant Capital, Peter Thiel's Clarium Capital, Stephen Mandel's Lone Pine Capital, Lee Ainslie's Maverick Capital, John Griffin's Blue Ridge Capital, Boone Pickens' BP Capital, Louis Bacon's Moore Capital Management, Paul Tudor Jones' Tudor Investment Corp, Bruce Kovner's Caxton Associates, and Timothy Barakett's Atticus Capital. And, if you want to hear some insightful thoughts from many of the hedge fund managers listed above, head over to my post on Hedge Fund manager interviews. This week, I'm taking a slightly different approach to the hedge fund tracking series. I'm doing so because the 13F SEC filings are filed on a quarterly basis, so these materials are time sensitive and the next ones are due out in November. I stated in my series preface that you need to treat these as a lagging indicator, because that's what they are. The holdings discussed below reflect portfolio holdings as of June 30th, 2008. So, since these forms are so tedious to sort through, I've condensed the rest of the hedge funds I track to summarize their major moves and top holdings.

Harbinger Capital is a $13.8 Billion firm ran by Philip Falcone. Taken from StreetInsider, Harbinger is "a disciplined, value investor with an emphasis on intensive credit research. Its focus is on middle market companies that tend to be misunderstood or under-researched by the market. Investment approaches include: Restructuring/Bankruptcy, Turnaround, Liquidation, Event Driven, Capital Structure Arbitrage, Short Sale and Special Situations." At one point during this year, they were up as much as 42% (more on that below). And, if you're interested in more on the manager of Harbinger, then head over to my post about Philip Falcone.

So, now that we've got a background on Harbinger Capital, let's take a quick look at their portfolio highlights. Keep in mind that this is merely a brief summary of their top holdings. Due to the time sensitive nature of the 13F material, I wanted to get this information posted before the next set of filings come out in November.

Top 20 Holdings by % of Portfolio
1. Freeport McMoran (FCX) - Added to position by 4.3%
2. Cleveland Cliffs (CLF) - Boosted stake by 127%
3. AK Steel (AKS) - Added to position by 12%
4. Mirant (MIR) - Added to stake by 7.5%
5. Sprint Nextel (S) - New position
6. Ultrashort Financials (SKF) - Decreased stake by 10%
7. Atlas Air Worldwide (AAWW) - Barely moved stake, literally only sold 4 shares
8. Leap Wireless (LEAP) - No change in position
9. Ashland (ASH) - Increased position by 17.4%
10. New York Times (NYT) - Sold literally only 12 shares
11. Owens Corning (OC) - Boosted stake by 4.8%
12. Cablevision (CVC) - New position
13. Corn Products International (CPO) - Increased stake by 168%
14. Williams Sonoma (WSM) - Sold literally only 3 shares
15. Yahoo (YHOO) - New position
16. TerreStar Corp (TSTR) - Boosted stake by 2.7%
17. Peabody Energy (BTU) - New position
18. RTI International Metals (RTI) - No change in position
19. Northwest Airlines (NWA) - Added only 46 shares
20. Hughes Communication (HUGH) - No change in position

Harbinger's top 3 holdings have undoubtedly increased the volatility in their portfolio. Those three stocks have been on a downward spiral to hell. Freeport McMoran (FCX), Harbinger's top holding, traded around $110-120 at the time of this SEC filing. Since then, FCX has sold off hard and currently trades around $53. Additionally, their position in Cleveland Cliffs (CLF), which they increased by 127% last quarter, has played out in similar fashion. (They basically bought additional CLF at the top). CLF traded around $120 at the time they disclosed their positions. Now, CLF trades around $48. How about some more? Let's move on to AK Steel (AKS), which traded around $70 at the time of this filing. Now, it trades around $23. Undoubtedly, you get the picture. Harbinger's metals and natural resource plays have really been a thorn in their side. And, if there is one 13F filing I am most looking forward to come November, Harbinger's would be it. Because, in that next filing, we will get to see their updated portfolio to see if they were "buying the dip" in these names, or whether they were puking them up with the rest of the market. Harbinger has massive positions in these names, as they are their top 3 largest portfolio holdings.

So, how much pain did those positions (among others) cause Harbinger? Well, a lot, as I recently noted in my performance update on Harbinger. Earlier in the year, they were up as much as 42%. And, nowadays, they find themselves up only 2% for the year. How's that for a swing? This is why I say that their next filing will be very interesting, because many of their top holdings have seen wild volatility. And, if you're interested in other hedge funds, then head over to my last hedge fund year-to-date performance update.

Other notable portfolio news includes new positions in Sprint Nextel (S), Cablevision (CVC), Peabody Energy (BTU), and Yahoo (YHOO). These are positions that Harbinger did not hold in the prior quarter and thus are new holdings. And, they were sinking a lot of money into these positions, as they brought all of these holdings all the way up to top 20 holdings in their portfolio.

One last thing I want to mention is their position in Corn Products International (CPO). Over the past quarter, they boosted their position in this company by 168%, bringing it up to their 13th largest holding. So, on one hand, you can highlight that they were buying with conviction and that maybe it's a name we should be paying attention to. On the other hand, they added to CLF with conviction and look where that got them. Point being, they were heavily adding to this name.

Also, since this 13F filing, we have seen additional activity by Harbinger. In a recent 13G filed with the SEC, Harbinger has disclosed a 6% ownership stake in Ashland (ASH). They now own 3,789,266 shares. Curiously enough, in the 13F detailed above, Harbinger held 5,871,426 shares of ASH. So, they've decreased their position substantially recently. A 13G filing signifies a passive investment in a company. But, as we are all too familiar with Harbinger's activist exploits in the coal/steel arena, there's always the option they could shift this position from a passive investment, to an activist one (which would require a 13D filing). But, for now, they've maintained it as a passive investment while decreasing their stake.

That sums up the details of Harbinger's filing. Overall, it's been the worst year for hedge funds in a long time, and Harbinger is a perfect example of such volatility.

You can view Harbinger's entire 13F filing over at the SEC.

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