Shumway Capital Partners Jumps Into Bank of America (BAC), Joining Other Hedge Funds in Q2 (13F Filing) ~ market folly

Tuesday, September 29, 2009

Shumway Capital Partners Jumps Into Bank of America (BAC), Joining Other Hedge Funds in Q2 (13F Filing)

This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.

It's been a week or two since we last checked in on 13F filings and our apologies for those of you anxiously awaiting the next installment. Unfortunately, there has been such a slew of 13D and 13G filings from various funds we track that we have been swamped. However, we are here again to cover a few more funds via 13F to give you an entire portfolio snapshot of their long US equity positions. The last manager we covered in our 13F analysis was Bret Barakett and Tremblant Capital Group. This time around, we'll kick it back off with Chris Shumway's hedge fund, Shumway Capital Partners.

Chris Shumway runs a $5 billion hedge fund and is best known for intensive fundamental research to create long/short equity portfolios. He is a 'Tiger Cub' because he formerly served as Julian Robertson's right-hand man while at Tiger Management. Taken from our post on 'Tiger Cub' biographies, "Chris Shumway is the Founding Partner of Shumway Capital Partners (“SCP”), an investment management firm founded in 2001. SCP, which manages a multibillion dollar group of private investment funds, uses a private equity-like research model for public market investment on a global basis. Prior to forming SCP, Mr. Shumway was a Senior Managing Director at Tiger Management (1992-1999), an Analyst at Brentwood Associates (1990-1991), and an Analyst at Morgan Stanley & Co. (1988-1990). He received an M.B.A. from Harvard Business School (1993) and a B.S. from the McIntire School of Commerce at the University of Virginia (1988)." Shumway has an impressive track record since inception and has a rolling 3 year annualized return of well over 28%. Using this metric to rank hedge funds, Shumway's performance landed them at #11 in Barron's top 100 hedge funds for 2009.

That performance speaks for itself and we are proud to include Shumway in our custom Market Folly portfolio which invests in hedge fund holdings. Our unique hedge fund clone has seen a total return of over 500% since 2000, compared to a return of only -18.4% for the S&P 500. We created the portfolio with Alphaclone and combined 3 top hedge fund managers into one cohesive portfolio that is seeing fantastic results. Shumway is definitely a big part of those results and so let's see what their portfolio holds this time around.

The following were their long equity, note, and options holdings as of June 30th, 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):
Bank of America (BAC), Apple (AAPL), Priceline (PCLN), Baidu (BIDU), Wells Fargo (WFC), Urban Outfitters (URBN), Research in Motion (RIMM), Allstate (ALL), Community Health (CYH), Universal Health (UHS), Monsanto (MON), Juniper Networks (JNPR), Waters (WAT), Entergy (ETR), Annaly Capital (NLY), Bank of America (BAC) Calls, D&B (DNB), Goldman Sachs (GS), Crown Castle (CCI), Equinix Bonds, Las Vegas Sands (LVS), Covance (CVD), Novo Nordisk (NVO), Cisco Systems (CSCO) Calls, Netease (NTES), & Blackboard Bonds.

Some Increased Positions (A few positions they already owned but added shares to)
NII Holdings Bonds: Increased by 130% - but still only 0.32% of overall reported assets
SBA Communications (SBAC): Increased by 100.6%
Partnerre (PRE): Increased by 96%
Union Pacific (UNP): Increased by 71.6%
Renaissance Re (RNR): Increased by 58.3%
Mastercard (MA): Increased by 41.2%
EMC (EMC): Increased by 27%
Equinix (EQIX): Increased by 22.7%
Cisco Systems (CSCO): Increased by 18.7%

Some Reduced Positions (Some positions they sold some shares of)
Wyeth (WYE): Reduced by 92.8%
Visa (V): Reduced by 60.6%
CVS Caremark (CVS): Reduced by 31.6%
Teva Pharma (TEVA): Reduced by 27.2%
Qualcomm (QCOM): Reduced by 21.3%

Removed Positions (Positions they sold out of completely)
Microsoft (MSFT)
American Tower (AMT)
Walmart (WMT)
Zimmer Holdings (ZMH)
Disney (DIS)
Costco (COST)
iShares Emerging Markets (EEM)
JPMorgan Chase (JPM)
Hudson City Bancorp (HCBK)
International Game Technology (IGT)
Potash (POT)
Equinix Bonds
SBA Communications Bonds

Top 15 Holdings by percentage of assets reported on 13F filing *(see note below regarding calculations)

  1. Bank of America (BAC): 7.2%
  2. Mastercard (MA): 6.95%
  3. Cisco Systems (CSCO): 6.65%
  4. Teva Pharmaceuticals (TEVA): 5.74%
  5. St Jude Medical (STJ): 4.6%
  6. Apple (AAPL): 4.43%
  7. Equinix (EQIX): 4.2%
  8. EMC (EMC): 4.2%
  9. Priceline (PCLN): 3.4%
  10. CVS Caremark (CVS): 2.97%
  11. Qualcomm (QCOM) Calls: 2.9%
  12. Baidu (BIDU): 2.8%
  13. Pfizer (PFE): 2.8%
  14. Union Pacific (UNP): 2.7%
  15. Wells Fargo (WFC): 2.7%

What sticks out right away about Shumway's portfolio is the fact that they added Bank of America (BAC) as a brand new position and brought it all the way up to their top holding. Not to mention, they also added call options on the name and even opened a position in Wells Fargo (WFC) too. With that, Shumway now joins the countless other prominent hedge funds involved in the financials trade over the past quarter. We want to insert a note of caution not to necessarily read too much into this for a few reasons. Firstly, this could have been purely a trade and they could possibly have already sold some (or all) of the position. Secondly, since their 13F shows their positions as of June 30th, a solid 3 months have elapsed since this disclosure and you need to be cognizant of this. Shares of BAC are up over 30% since the end of June. We're simply here to share the data and many are questioning as to whether or not many of these prominent hedge funds will just trade these financial positions or hold them for a longer period of time. Unfortunately, we'll just have to wait and see. They also added brand new positions in Apple (AAPL) and Priceline (PCLN) and brought those stakes up to the 6th largest and 9th largest holdings respectively. These names definitely fit the bill as part of a 'typical hedge fund portfolio' as noted when Goldman Sachs examined hedge fund holdings.

In terms of positions they already held, they boosted their #2 holding Mastercard (MA) by over 40%. Additionally, they upped their Union Pacific (UNP) stake by over 70%. On the selling side of things, they reduced their 4th largest position Teva (TEVA) by almost 30% and they cut their CVS Caremark (CVS) stake by over 30%. Other sales worth highlighting are their distribution of 60% of their Visa (V) position and the fact that they also dumped over 90% of their Wyeth (WYE) position. Their Visa movement is all the more interesting when you combine that with what they did with Mastercard. It appears that they favor MA over V, at least for now. This is intriguing because typically, the hedge funds we track have owned roughly the same amount of both the payment processors.

Some notable names they sold completely out of include former holdings Microsoft (MSFT), American Tower (AMT), and Walmart (WMT). Overall though, due to their increase in assets, Shumway was out adding a bevy of brand new positions in the second quarter. That about wraps up all the major moves in their portfolio. For more on Shumway's performance and how you can replicate their portfolio, check out our Market Folly custom portfolio.

*Note regarding portfolio percentages: Assets from the collective holdings reported to the SEC via 13F filing were $4.4 billion this quarter compared to $3.1 billion last quarter, so quite a noticeable uptick in holdings. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. In reality, the percentages are more watered down in their actual hedge fund portfolio. If you were to calculate percentage weightings in the actual hedge fund, they would obviously be lower since you would divide position sizes by their total assets under management (a larger number than the one reported on the 13F).

This is just one of the 40+ prominent funds that we'll be covering in our Q2 2009 hedge fund portfolio series. So far, we've already covered the holdings of Bill Ackman's Pershing Square Capital Management, David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Dan Loeb's Third Point LLC, and Stephen Mandel's Lone Pine Capital, George Soros (Soros Fund Management), Lee Ainslie's Maverick Capital, Philip Falcone's Harbinger Capital Partners, David Stemerman's Conatus Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, Thomas Steyer's Farallon Capital, Boone Pickens' BP Capital Management, Ken Griffin's Citadel Investment Group, and Bret Barakett's Tremblant Capital Group. Check back each day as we cover prominent hedge fund portfolios.

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