John Burbank's Passport Capital Adds Massive Gold Stake: 13F Filing Q1 2009 ~ market folly

Thursday, June 18, 2009

John Burbank's Passport Capital Adds Massive Gold Stake: 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.

Next up is John Burbank's Passport Capital. This is only the second time we've covered Passport's filings, so let's get to some quick background. Burbank founded the $2 billion San Francisco hedge fund in 2000 and they use macroeconomic and sector analysis to select their investments. After identifying macro themes, they drill down to find individual companies with rigorous fundamental research. 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 has a very respectable track record of gaining 27% annually, but like many other funds, hit a rough patch in 2008. They've bounced back quickly in 2009 though as we've detailed below.

In terms of recent activity, we've covered Passport's agriculture fund update. Additionally, we saw that Passport had an absolutely monster month of May, as they were up 24% for the month and are now up 33% for the year in our May 2009 hedge fund performances post. This success was largely due to the rise in commodities, as Passport had heavy exposure both there and in commodity related equities.

The following were Passport's 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):
Potash (POT), Ishares Russell 2000 (IWM) Puts, Apollo Group (APOL) Puts, Google (GOOG), Puts, Petroleo Brasileiro (PBR-A) Calls, Harley Davidson (HOG) Puts, Gilead Sciences (GILD), Genzyme (GENZ), Tyco (TYC) Calls, Bed Bath Beyond (BBBY) Puts, US Oil Fund (USO) Calls, Weatherford (WFT) Calls, Teva (TEVA), Infinera (INFN), Terex (TEX), Morgan Stanley (MS) Calls, Biomarin (BMRN), Broadcom (BRCM) Calls, Cisco (CSCO) Calls, MEMC (WFR) Calls, Becton Dickson and Co (BDX), Sequenom (SQNM), Vale (RIO) Calls, Thermo Fisher Scientific (TMO), General Electric (GE) Puts, Qualcomm (QCOM), Steel Dynamics (STLD) Calls, Dow Chemical (DOW) Calls, and Oil Services (OIH) Calls

Some Increased Positions (A few positions they already owned but added shares to)
SPDR Gold Trust (GLD): Increased by 6,717%
First Solar (FSLR): Increased by 195%
JDS Uniphase (JDSU): Increased by 128%
Logitech (LOGI): Increased by 122%

Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Transocean (RIG): Reduced by 82%
Baidu (BIDU): Reduced by 78%
Citrix (CTXS): Reduced by 59%
Priceline (PCLN): Increased by 55%
Google (GOOG): Reduced by 22%

Removed Positions (Positions they sold out of completely)
Qualcomm (QCOM) Calls, Akamai (AKAM), Terra Industries (TRA), VMWare (VMW), Riverbed (RVBD), Alpha Natural (ANR) Calls, Sun Micro (JAVA), Energy Conversion Devices (ENER), Petroleo Brasileiro (PBR-A), Walter (WLT) Calls, Southwestern Energy (SWN), United States Oil (USO), Schlumberger (SLB), Nvidia (NVDA), Excel Maritime (EXM), Nexen (NXY), Bioform (BFRM), and numerous other positions that were each less than 0.2% of their portfolio.

Top 15 Holdings (by % of portfolio)

  1. Mosaic (MOS): 13.5% of portfolio
  2. SPDR Gold Trust (GLD): 7.9% of portfolio
  3. Potash (POT): 6.83% of portfolio
  4. Ishares Russell 2000 (IWM) Puts: 5.4% of portfolio
  5. Apollo Group (APOL) Puts: 5% of portfolio
  6. Google (GOOG) Puts: 4.46% of portfolio
  7. JDS Uniphase (JDSU): 4% of portfolio
  8. Petroleo Brasileiro (PBR-A) Calls: 3.9% of portfolio
  9. Harley Davidson (HOG) Puts: 3.43% of portfolio
  10. Gilead Sciences (GILD): 3.3% of portfolio
  11. Genzyme (GENZ): 2.7% of portfolio
  12. Tyco (TYC) Calls: 2.5% of portfolio
  13. Bed Bath & Beyond (BBBY) Puts: 2.4% of portfolio
  14. United States Oil Fund (USO) Calls: 2.4% of portfolio
  15. Weatherford International (WFT) Calls: 2% of portfolio

By far and away their largest move last quarter was their addition to their gold position via GLD. They boosted it by 6,717% and moved it all the way up to their 2nd largest holding at 7.9% of their overall long portfolio. This is a big move and very notable as it adds yet another prominent hedge fund to the list of those in the gold trade. We now wonder if this is a contrarian signal that it may be time to get out of gold with all of the hedge funds having already rushed in. For the current chart outlook on gold, check out this great gold technical analysis video.

The second most interesting to note about Passport's holdings is their abundance of fertilizer via Mosaic and Potash, their #1 and #3 positions respectively. In total, over 20% of their long portfolio is allocated to fertilizer plays. And, after all, Passport does have an agriculture fund now that started trading in March. They are definitely big believers in the agriculture story long-term and share similar thoughts as legendary investor Jim Rogers, whose portfolio we just covered yesterday.

Thirdly, we also couldn't help but notice that a vast majority of Passport's top 15 holdings are all new positions they just initiated. As we'll touch on later, Passport was putting new money to work in their portfolio. This money went mainly into new holdings, save for a few previously already large positions. Regarding positions they sold out of completely, Passport did make some fairly major moves. In the last quarter, their Qualcomm (QCOM) Calls positions was 19% of their portfolio and they sold completely out of it, no longer holding those options. Additionally, they completely sold out of their Akamai (AKAM) which was previously over a 9% position for them.

Lastly, there is also one other thing to note about their portfolio. Passport clearly has a propensity to play Puts on equities via the options market. Their fourth, fifth, sixth, and ninth largest positions are all put positions on various companies and indices. Clearly, they do not see the rally as a new beginning and are skeptical of the move some stocks have made. Their put position on Apollo Group is intriguing, seeing how numerous other hedge funds we cover (namely 'Tiger Cub' funds) have large stakes in APOL. Passport has taken the other side of this bet and they are not alone. At the recent Ira Sohn conference, hedge fund manager and short-seller extraordinaire Jim Chanos presented a case for shorting the for profit education companies like Strayer Education and Apollo. We'll have to see which set of funds wins out on this wager.

For additional Passport resources, we've published a list that they sent out to their investors, entitled 'Passport's Suggested Reading List.' The list encompasses some great financial articles worth any investor's time.

Assets from the collective holdings reported to the SEC via 13F filing were $779 million this quarter compared to $375 million last quarter, so Passport doubled their exposure on the long side and then some. But, this is just a fraction of the assets they had on the long side in the past. Two quarters ago, they had over $3 billion invested. While they have deleveraged and scaled back, it looks like they are starting to put some money back to work. 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, John Paulson's hedge fund Paulson & Co, Stephen Mandel's Lone Pine Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, and David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Timothy Barakett's Atticus Capital, Lee Ainslie's Maverick Capital, Raj Rajaratnam's Galleon Group, Shumway Capital Partners (Chris Shumway), Bret Barakett's Tremblant Capital Group, Boone Pickens' BP Capital Management, Whitney Tison's T2 Partners, Chase Coleman's Tiger Global, David Stemerman's Conatus Capital, Soros Fund Management (George Soros), and Jim Rogers.

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