John Paulson's Hedge Fund Starts New Positions in MGM Mirage, Apache, Mylan & More: 13F Filing Q1 2010 ~ market folly

Tuesday, May 25, 2010

John Paulson's Hedge Fund Starts New Positions in MGM Mirage, Apache, Mylan & More: 13F Filing Q1 2010

(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 filings.)

Next up is John Paulson's hedge fund Paulson & Co. Before becoming a hedge fund 'rockstar' due to his wildly successful bet against subprime, Paulson managed a seemingly mediocre merger arbitrage fund. So while Paulson has since started other hedge funds focused on other strategies (Recovery Fund, etc), keep in mind that many of the equity positions listed below are related to his core arbitrage strategy. Also, please note that Paulson's massive stake in exchange traded fund GLD is merely a hedge to his fund share class that is denominated in gold.

For more on Paulson's big trade, Wall Street Journal columnist Gregory Zuckerman detailed the impressive wager in the book, The Greatest Trade Ever (one we highly recommend reading). Such amazing performance led Paulson's hedge funds to be the #1 and #4 funds as ranked in Barron's hedge fund rankings in the past.

In recent portfolio activity that has occurred after these filings, John Paulson's fund has disclosed a new stake in American Capital (ACAS) as well. Paulson has been in the spotlight in recent months due to the controversy surrounding Goldman Sachs and the subprime mortgage trade and he cleared the air with his recent letter to investors. Nowadays, Paulson has found his next big bet: a wager against the US dollar. He is executing this via his new gold fund.

The positions listed below were Paulson & Co's long equity, note, and options holdings as of March 31st, 2010 as filed with the SEC. All holdings are common stock unless otherwise denoted:

Brand New Positions
MGM Mirage (MGM)
Apache (APA)
Mylan (MYL)
Family Dollar Stores (FDO)
Devon Energy (DVN)
Novell (NOVL)
Novagold Resources (NG) ~ we already covered how Paulson was set to buy NG shares
Supermedia (SPMD) ~ we previously detailed this stake as well
Smith International (SII)
Boyd Gaming (BYD)
Randgold Resources (GOLD)
Bank of America (Warrants)
Iamgold (IAG)
Beazer Homes (BZH)
Barrick Gold (ABX)
First Midwest Bancorp (FMBI)
Beazer Homes (BZMD)

Increased Positions
Hartford Financial (HIG): Increased position size by 363.6%
Apollo Group (APOL): Increased by 93%
XTO Energy (XTO): Increased by 30%
Bank of America (BAC): Increased by 11%

Reduced Positions
Mead Johnson Nutrition (MJN): Reduced position size by 50%

Positions They Sold Out of Completely
Sun Microsystems ~ inactive, merger completed
Philip Morris International (PM)
Pepsi Bottling Group ~ inactive, merger completed
IMS Health (RX)
Bank of America Preferreds (BAC-S)
Liberty Entertainment (LSTAV)
Burlington Northern Santa Fe ~ inactive, merger complete
Kraft Foods (KFT)
PepsiAmericas ~ inactive, merger complete
Encore Acquisition ~ inactive
Fifth Third Bancorp (FITB)
Chattem ~ inactive
Dr Pepper Snapple (DPS)
Valley National (VLY)
New York Community (NYB)

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

1. SPDR Gold Trust (GLD): 16.2%

2. Bank of America (BAC): 14.2%

3. Citigroup (C): 9.7%

4. Anglogold Ashanti (AU): 7.8%

5. Comcast (CMCSA) 3.9%

6. Suntrust Banks (STI): 3.8%

7. Boston Scientific (BSX): 3.4%

8. Capital One (COF): 3.3%

9. XTO Energy (XTO): 2.9%

10. Kinross Gold (KGC): 2.7%

11. Wells Fargo (WFC): 2.6%

12. MGM Mirage (MGM): 2.3%

13. Hartford Financial (HIG): 1.7%

14. Apache (APA): 1.6%

15. JPMorgan Chase (JPM): 1.5%

The majority of Paulson's portfolio activity in the first quarter centered around brand new positions or closing positions entirely; there were very few partial adjustments. In terms of new stakes, his position in MGM Mirage is sizable at their 12th largest US equity long. Sticking with the gaming sector, they also started a new position in Boyd Gaming (BYD). We highlight Paulson's new Novell (NOVL) play because this stock seems to currently be 'in play' as hedge fund Elliott Management made a bid for the company at $5.75 (most likely to drum up other bids) and now there are supposedly a bundle of private equity firms interested in NOVL. Lastly, we've been highlighting that numerous hedgies added Family Dollar (FDO) in the first quarter, and Paulson is one of those firms.

Paulson also continues to own a few of the stocks on Goldman Sachs' VIP list such as Bank of America, Pfizer, and JPMorgan. In terms of positions Paulson & Co sold out of, we see that these stocks were mainly in companies that completed merger transactions. This obviously reflects Paulson's core arbitrage strategy. Lastly, the fact that Paulson & Co hold such a large position in SunTrust Banks intrigued us solely because we've seen Warren Buffett sell STI and David Tepper's Appaloosa Management trim their STI stake.

Assets reported on Paulson's 13F filing were $21.1 billion this quarter. Data from the SEC is aggregated and sorted automatically by Alphaclone, our source for hedge fund tracking, replicating, and performance backtesting (Market Folly readers can receive a special free 30 day trial). Remember that these filings are not representative of the hedge fund's entire base of AUM.

This post is part of our daily hedge fund portfolio tracking series. We've already detailed activity from numerous managers so click the links below to be taken to the respective portfolio updates: Seth Klarman's Baupost Group, Warren Buffett's Berkshire Hathaway, Stephen Mandel's Lone Pine Capital, and Bill Ackman's Pershing Square, David Einhorn's Greenlight Capital, Eddie Lampert's RBS Partners, David Tepper's Appaloosa Management, Mohnish Pabrai's Investment Fund, John Griffin's Blue Ridge Capital, Lee Ainslie's Maverick Capital, Bruce Berkowitz's Fairholme Capital Management, Andreas Halvorsen's Viking Global, and Dan Loeb's Third Point. Be sure to check back daily for new hedge fund updates.

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