Saturday, February 13, 2010

Seth Klarman's Baupost Group Discloses New Positions (13F Filing Q4 2009)

This is the fourth quarter 2009 edition of our hedge fund portfolio tracking series. Before beginning, check out our series preface on hedge fund 13F filings.

Fittingly, we'll begin our coverage of fourth quarter holdings with arguably the most successful and respected modern hedge fund manager, Seth Klarman and Baupost Group. Klarman received his MBA from Harvard Business School and went to work for Baupost when he was 25. The rest is history as he has been one of the most successful investors of our time in terms of performance. Prior to this portfolio update, we had already covered Baupost's sale of RHI Entertainment (RHIE) and reduction in their Syneron Medical position (ELOS).

The positions listed below were Baupost's long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. Note that we are only covering the major portfolio maneuvers and all holdings are common stock unless otherwise denoted.

New Positions (Brand new stakes they initiated last quarter):
CIT Group (CIT)
DirecTV (DTV)
Liberty Media (LSTZA)

Increased Positions (Positions they already owned but added shares to):
Enzon Pharmaceuticals (ENZN): Increased by 290% ~ we covered the addition of this position before
Viasat (VSAT): Increased by 61.4%
Capitalsource (CSE): Increased by 15.4%
Theravance (THRX): Increased by 11.8%

Reduced Positions (Stakes they still own but sold shares in):
Sapphire Industrials (FYR.UN): Reduced by 63.7%
Syneron Medical (ELOS): Reduced by 28.4%
Domtar (UFS): Reduced by 10.3%
Capitalsource (SDCV 4% 7/1 Notes): Reduced by 2.9%
News Corp (NWSA): Reduced by 0.6%

Removed Positions (Positions they sold out of completely):
BPW Acquisition Corp (BPW)
Enterprise Acquisition Corp (EST)
Global Consumer Acquisition (GHC)
Liberty Media (LMDIA)
Prospect Acquisition Corp (PAX.UN)
RHI Entertainment (RHIE) ~ we detailed this right after it happened
SP Acquisition (inactive)
TM Entertainment & Media
Tremisis Energy (TGY.UN)
Overture Acquisition (NLX)

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

  1. News Corp (NWSA): 21.1%
  2. Domtar (UFS): 10.1%
  3. Viasat (VSAT): 9.86%
  4. Capitalsource (Convertibles 4% 7/1): 9.7%
  5. Theravance (THRX): 8.33%
  6. Breitburn Energy Partners (BBEP): 5.68%
  7. Enzon Pharmaceuticals (ENZN): 5.37%
  8. Capitalsource (CSE):5.08%
  9. CIT Group (CIT): 4.5%
  10. Facet Biotech (FACT): 3.88%
  11. DirecTV (DTV): 3.4%
  12. Capitalsource (Note 7.25% 7/1): 2.75%
  13. Alliance One (AOI): 2.71%
  14. Theravance (Note 3.0% 1/1): 2.06%
  15. Ituran Location & Control (ITRN): 1.39%

The main thing to takeaway from this filing is that this is only a small portion of Baupost's overall portfolio. They are currently in many distressed and more illiquid plays and we can't see them since they aren't required to disclose them publicly. Overall, the holdings listed above represent just over $1.5 billion in investments while Baupost manages a much larger asset base and also typically keeps a high amount of cash handy. Please note that in past Baupost updates we had combined all their Capitalsource exposure into one aggregate figure. This time we've instead separated it out by asset class as they own equity, notes, and convertibles.

Baupost's new equity acquisitions include CIT Group (CIT), DirecTV (DTV), and Liberty Media (LSTZA). Keep in mind though, that their stakes in DTV and LSTZA were actually a result of a Liberty Media transaction as Baupost owned the prior entity. Not to mention, while they show a new position in CIT Group, it was most likely a result of a debt to equity conversion, but there's no way to tell for sure. Additionally, they added to existing positions in Viasat and Enzon Pharmaceuticals. They sold completely out of a plethora of acquisition companies and notably reduced their stake in Sapphire Industrials. That really wraps up the majority of their activity.
In terms of other recent movements, we previously learned they will be buying more Facet Biotech (FACT) and rejecting Biogen Idec's takeover offer. For past resources on Klarman and Baupost Group, check out Klarman's interview from the annual Graham & Dodd breakfast, as well as some of his past investment insight, Baupost is one of the select few funds we have included in our Market Folly hedge fund portfolio replicator that has backtested 25% annualized returns. Head over to Alphaclone to see the hedge fund portfolio replication in action.

Assets from the holdings reported in the SEC 13F filing were $1.58 billion this quarter compared to $1.35 billion last quarter. Please keep in mind that when we reference 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), these percentages are undoubtedly different than in their actual hedge fund.

This is just one of the 40+ prominent funds that we'll be covering in our fourth quarter 2009 hedge fund portfolio tracking series, so check back daily.

Hedge Fund 13F Filings: Q4 2009 Portfolio Tracking

It's that time of year again. This post is the preface to the series we will be doing in the coming weeks that details what many prominent hedge funds have been up to in the fourth quarter of 2009 as per their 13F filing.

Four times a year (once each quarter), hedge funds & asset managers with greater than $100 million AUM (assets under management) are required to disclose their holdings to the SEC. These filings do not show the funds' short positions and require them to disclose their long holdings in equity markets. Additionally, they are required to file various puts or calls purchased in the options market as well as notes & convertibles. These filings do not cover commodities, currencies, or other markets.

We check these 13F filings quarterly to get a sense as to where these funds are putting their money. If you just sit down and do some simple number crunching between this quarter's 13F and the one prior, you can see exactly where they've shifted their money. And, if you create a cloned portfolio based on these top hedge fund holdings, you can see backtested returns of up to 25% annualized like our Market Folly replicator created with Alphaclone.

These 13F's should be treated as a lagging indicator simply because the filings that are being released currently (February 12th, 2010) detail the funds' portfolio holdings as of December 30th, 2009. So, in the past month and a half, they could have altered their portfolio. But at the same time, it's easy to see which sectors they are flocking to and what their concentrated positions are.

We like to specifically follow equity focused hedge funds as they have the most SEC filing transparency and provide the most accurate tracking. We focus on value based (or growth-at-a-reasonable-price) hedge funds in hopes they won't experience high turnover and as such won't be as affected by the timelag associated with the SEC filings.

Specifically, we primarily follow the 'Tiger Cubs' (otherwise known as the proteges of former hedge fund Tiger Management legend Julian Robertson). Many of these former proteges/right-hand men have started their own funds and here are the ones we'll be tracking:

- John Griffin's Blue Ridge Capital
- Stephen Mandel's Lone Pine Capital
- Lee Ainslie's Maverick Capital
- Andreas Halvorsen's Viking Global
- Roberto Mignone's Bridger Management
- Shumway Capital Partners (Chris Shumway)
- Philippe Laffont's Coatue Capital Management
- David Gerstenhaber's Argonaut Capital Management
- Tom Brown's Second Curve Capital
- Kris Kristynik's Longhorn Capital Partners

We'll also be tracking the aptly named 'Tiger Seeds,' or funds that have been seeded by Julian Robertson himself:

- Chase Coleman's Tiger Global
- Charles Anderson's Fox Point Capital Management
- Jonathan Auerbach's Hound Partners
- Dane Andreeff's Maple Leaf Partners

We will also be following what we have termed the 'Tiger GrandCubs', or newer funds started by former employees of Tiger Cub funds, including:

- David Stemerman's Conatus Capital
- David Gallo's Valinor Management
- Lee Hobson's Highside Capital
- Matt Iorio's White Elm Capital

Additionally, we also like to follow the Commodities Corporation "offspring" which have gone off to start their own funds and typically employ a global macro strategy. We don't track them for their specific equity holdings since they typically deal in futures. We like to see what sectors they might be flocking to and whether or not they have a large allocation to US equities.

- Tudor Investment Corp (Paul Tudor Jones)
- Moore Capital Management (Louis Bacon)
- Caxton Associates (Bruce Kovner)

And of course, we watch the movements of well known investment gurus:

- Warren Buffett (Berkshire Hathaway)
- Carl Icahn (Icahn Partners)
- George Soros (Soros Fund Management)

Next, we also follow an assortment of funds that employ various strategies ranging from activist to global macro and often run concentrated portfolios. We track some of these funds due to their solid returns over the years and others due to the spotlight that has been cast on them during the crisis.

- Bret Barakett's Tremblant Capital
- Peter Thiel's Clarium Capital
- David Tepper's Appaloosa Management
- Philip Falcone's Harbinger Capital Partners
- Boone Pickens' BP Capital
- John Paulson's Paulson & Co
- Barry Rosenstein's Jana Partners
- Eric Mindich's Eton Park Capital
- Farallon Capital Management (Thomas Steyer)
- John Burbank's Passport Capital
- Ken Griffin's Citadel Investment Group
- Jeffrey Gendell's Tontine Associates
- Anand Parekh's Alyeska Investment Group (ex-Citadel)
- Passport Capital (John Burbank)
- Sprott Asset Management (Eric Sprott)
- Balyasny Asset Management (Dmitry Balyasny)

Also, we'll be detailing the portfolio changes of some notable value & activist funds:

- Seth Klarman's Baupost Group
- David Einhorn's Greenlight Capital
- Dan Loeb's Third Point LLC
- Bill Ackman's Pershing Square Capital Management
- Eddie Lampert's RBS Partners
- Ricky Sandler's Eminence Capital
- Mohnish Pabrai's investment fund

As you can see, we've taken on quite a workload of fund coverage. While Market Folly is only a team of 1, there will be as much hedge fund content as possible on a daily basis. Over the coming weeks we'll touch on some of the important position moves these funds and market gurus have made. As always, if you have any resources regarding any of the above funds, please get in contact with us at the top of the site.

The hedge fund portfolio tracking series (fourth quarter 2009 edition) starts today, so spread the word and check back daily. First up in a separate post, Seth Klarman's Baupost Group.

Friday, February 12, 2010

Checking In On Gold

We wanted to highlight MarketClub's recent video on gold given that we've been keeping an eye on the precious metal. After all, tons of prominent hedge funds have assembled large stakes in gold and we'll highlight all the resources we've posted at the bottom of the article. But taking a quick technical look at the metal, they are seeing two major conflicting patterns and will ultimately need a resolution. Click below to watch the video:

In their video, they draw a trendline from November of last year to present action and you'll see that gold recently bounced off the bottom of that support. At the same time, there has been a downtrend over the past few months that has caused a stir amongst gold bugs. The main thing to watch for is a break in either direction of the triangular pattern that has taken shape. MarketClub thinks that gold will be trapped in a trading range for a little while before ultimately heading one direction. The simple thing to do in the mean time would be to get long on a break to the upside of the pattern, and exit longs/get short on a break to the downside. But for now, the longer term trend is still up. Check out their thoughts on gold.

Next, shifting more towards a fundamental view, we have covered a plethora of in-depth resources regarding the investment case for gold. Below is a list of hedge fund research we've assembled and highly recommend for those of you puzzled by the precious metal:

- An in-depth look at John Paulson's gold fund & bet against the US dollar (Paulson additionally owns a ton of exchange traded fund GLD as a hedge to his fund share class denominated in gold).

- Global macro hedge fund Woodbine Capital has taken a different stance on the precious metal and penned their research in Gold: The Anti-Goldilocks.

- John Burbank & Passport Capital's rationale for owning physical gold versus other proxies.

- David Einhorn is also storing physical gold (hedge fundGreenlight Capital).

- Sprott Asset Management (Eric Sprott) launched a physical gold trust and also published research entitled, The Ultimate Triple-A Asset

Meanwhile, you have legendary investor George Soros recently out saying that gold is the ultimate bubble. As you can see, there are quite a few prominent players interested in the metal, so at the very least it's worth monitoring the situation.

David Gallo's Valinor Management Updates Position

In an amended 13G filed with the SEC, we see that David Gallo's hedge fund Valinor Management has updated their stake in DSW Inc (DSW). The filing was made due to activity on December 31st, 2009 and Valinor now owns a 6.5% ownership stake in DSW with 1,068,230 aggregate shares owned. This represents a 33.5% reduction in their position (540,470 shares) as they previously owned an aggregate of 1,608,700 shares per their last 13F filing which detailed holdings as of September 30th, 2009.

This is the first time we've covered Valinor so we wanted to provide a brief background. David Gallo founded Valinor after previously working at Roberto Mignone's Bridger Management, whom we've also covered on the site. Gallo received his MBA from Harvard Business School. And, a fun fact: hedge fund Valinor is named after the lands often inhabited by immortal souls from the books of J.R.R. Tolkien. Valinor Management is part of the Tiger Cub network of hedge funds (see the Tiger Cub family tree here) due to the previous relationship with Bridger. We'll continue to cover their portfolio movements from now on.

Taken from Google Finance, DSW is "a branded footwear specialty retailer. As of January 31, 2009, the Company operated 298 DSW stores in 37 states in the United States. The Company separates its merchandise into four categories: women’s footwear, men’s footwear, athletic footwear and accessories. It also offers a complementary assortment of handbags, hosiery and other accessories. The Company’s stores average approximately 23,000 square feet and carry approximately 27,000 pairs of shoes."

Women In Hedge Funds: Top 50

The hedge fund journal has released an intriguing and comprehensive overview of the top 50 leading women in hedge funds. In a seemingly male dominated industry, it's good to see many talented females emerging and being recognized for their talents. This is a topic we've regrettably been scarce in coverage on, save for a post on the future of hedge funds through women's eyes. So, hopefully we'll be able to talk more about the role of women in the industry as we move forward.

Some of you may already be familiar with some of the women on the list as they have already gained notoriety. For instance, Anne Dias Griffin manages hedge fund Aragon Global Management and is the wife of Citadel's Ken Griffin (definitely a talented family). Elaine Crocker is President at one of the top global macro hedge funds out there, Moore Capital Management. Also, Anne Dinning is a Managing Director at quant firm D.E. Shaw and Leda Braga of BlueCrest that helps manage over $9 billion.

One of the most familiar names is probably Karen Finerman of Metropolitan Capital Advisors given her frequent appearances on CNBC's television show Fast Money. Marcy Engel is the COO and General Counsel of Eton Park Capital Management, a fund we frequently cover here on the site. Additionally, Mina Gerowin of Paulson & Co made the list.

This compilation also highlights some of the other women who you might not know of that are making an impact in the industry. You can directly download the .pdf here and embedded below is the "50 Leading Women In Hedge Funds" document in its entirety:

For more on the topic, we've also posted up about the future of hedge funds from a woman's perspective.

Activist Investing: Barnes & Noble (BKS) Analysis

Today we want to present you with some interesting analysis of the activist investing situation over at Barnes & Noble (BKS). If you've been following the developments via 13D filing, you know that there seems to be a battle going on now regarding large ownership stakes and control of the company.

The Reformed Broker started a new web show recently on Stocktwits aimed at analyzing activist investing situations. Without further ado, below is the video of his introduction to the series and his analysis of the Barnes & Noble situation (RSS & Email readers come to the site in order to see it):

What We're Reading ~ 2/12/10

Wall Street taking over Vegas sports betting [Reformed Broker]

The impact of the Fed's MBS purchase program [Voxeu]

The time value of money [A VC]

The Superbowl team: Online finance's best [New Rules of Investing]

Is Whitney Tilson running a 'fund of best ideas'? 2 articles: World Beta and Barbarian Capital

Interview with options guru Jon Najarian [Wall St Cheat Sheet]

Morningstar acquires footnoted, one of our long-time favorite blogs [footnoted]

2010: 8 stocks Benjamin Graham would like [Stingy Investor]

The impending bond disaster [FT Alphaville]

John Paulson's new hedge fund not finding many investors [WSJ] ~ See also our in-depth post on Paulson's gold fund.

Warren Buffett covers a dinner tab for a hedgie who shared research [Business Week] ~ now everyone is going to be sending Buffett letters!

Thursday, February 11, 2010

Value Investing Congress 33% Discount Expires Soon

The Value Investing Congress is quickly approaching and we wanted to remind everyone to take advantage of the 33% discount for our readers before it expires in 8 days. Simply put, it's the best investment conference out there as you'll hear insightful investment ideas and presentations from some of the top hedge fund and investment managers out there. Not to mention, it's a great networking opportunity. Market Folly readers can save 33% with discount code P10MF6.

Here's the list of prominent investors who will be presenting at the two-day event:

  • Bruce Berkowitz, Fairholme Capital Management
  • Eric Sprott, Sprott Asset Management
  • John Burbank, Passport Capital
  • Mohnish Pabrai, Pabrai Investment Funds
  • Paul Sonkin, The Hummingbird Value Funds
  • Thomas Russo, Gardner, Russo & Gardner
  • David Nierenberg, The D3 Family Funds
  • Lloyd Khaner, Khaner Capital
  • J. Carlo Cannell, Cannell Capital
  • Patrick Degorce, Thélème Partners
  • Whitney Tilson & Glenn Tongue, T2 Partners
  • Guy Spier, Aquamarine Fund
  • Amitabh Singhi, Surefin Investments
  • Richard Vogel, Alatus SA

And then here are the specifics for the Value Investing Congress event:

When: May 4th & 5th, 2010

Where: Pasadena, California at The Langham, Huntington Hotel & Spa

Discount: Market Folly readers click here to receive your $1,450 discount with code: P10MF6. Act quickly because the discount expires in 8 days.

Hedge Fund Harbinger Capital Adds Convertible Bonds

Philip Falcone's hedge fund Harbinger Capital Partners has filed an amended 13G with the SEC on shares of Mercer International (MERC). In the filing, we learn that Harbinger has a 10.94% ownership stake in MERC with 4,201,527 shares. Do note that this total includes shares they are eligible to obtain upon the conversion of convertible bonds. As per their last 13F filing which detailed positions as of September 30th, 2009, Harbinger previously owned 1,995,100 shares of Mercer. So, we see that they have added 1,973,333 shares via exposure through convertible bonds somewhere over the past four months. Digging into their separately filed SEC Form 3, we discover that Harbinger purchased the 8.5% convertible notes due in October 2012.

In terms of other recent activity out of Harbinger, we saw that they have been selling Calpine (CPN) and in early January we covered Harbinger's three new positions. After having a dismal 2008, Harbinger had a great showing last year as they finished up 46.5% as we noted in our 2009 hedge fund performance numbers post. Falcone runs a series of hedge funds focused on distressed plays and concentrated equity positions.

Taken from Google Finance, Mercer International "operates in the pulp business and is a producer of market northern bleached softwood kraft (NBSK) pulp. The Company’s operations are located in Eastern Germany and Western Canada. It operates three NBSK pulp mills with a consolidated annual production capacity of approximately 1.5 million million air-dried metric tons (ADMTs)."

Jeff Saut's Weekly Investment Strategy (Raymond James)

Raymond James' Chief Investment Strategist Jeff Saut's latest weekly commentary is entitled 'Roger Redux?!' and he examines the recent market action. He is still cautious on the markets until signs of a bottom from the current downtrend emerge. That being said, once the market fights off this correction, he feels that the market will "trade to new reaction highs."

Saut then offered a few stocks they've kept there eye on for potential purchases. He specifically highlighted North American Energy Partners (NOA), Walter Energy (WLT), and Cenovus Energy (CVE). We've also previously highlighted their list of analysts' best stock picks for 2010.

You can read the rationale for the aforementioned stocks below in the embedded document of Jeff Saut's investment strategy:

You can download the .pdf here.

For more insight and investment strategy head to Jeff Saut's 2010 market outlook, as well as his commentary from last week.

Long/Short Hedge Funds: Lowest Net Long Exposure Since May 2009

We're back with this week's edition of Bank of America Merrill Lynch's hedge fund monitor report. Last week, their report focused on how hedge funds continued to de-risk. This time around, we see that the de-risking trend continued as hedge funds sold equities, oil, and the euro.

By far the most notable takeaway from this report is the fact that long/short equity hedge funds continued to de-risk and reduced market exposure down to 27-28% net long exposure and this is the lowest level since May 2009. Shifting to other fund strategies, the report found that market neutral hedge funds increased their equity exposure, while global macro hedge funds held their equity exposure steady. Macro funds were also selling emerging markets.

Below you will find the entire Bank of America Merrill Lynch hedge fund monitor report. RSS & Email readers must come to the site in order to view it.

We'll continue to cover hedge fund movements on a daily basis. In the mean time, check out more research from Bank of America where they recommend to overweight stocks and underweight bonds. For more insight as to what hedge funds are investing in, we've previously examined the top stocks held by hedge funds as well.

Wednesday, February 10, 2010

Market of 2010 = Market of 1929? Historical Comparison

Adam and MarketClub just posted up an interesting analytical video where they look at whether or not this is deja vu all over again for the stock market with historical comparisons to 1929. They examine the current 2010 market and outline the similarities to past markets. History often repeats itself, especially in market patterns. Adam notes that this chart is not meant to scare people, but rather to keep in the back of your mind as a possibility given the ferocious nature of bear markets and their massive gyrations. After all, people often become complacent when everything is fine and dandy and stocks are heading higher. The red underline in the chart below highlights the part of the historical pattern that the 2010 market has already completed. As you can see, the 1929 market fell drastically lower after completing that pattern. Click below to watch their analytical video:

They highlight that investors are nervous, especially the babyboomers who are worried about their retirement funds. If the market starts to drop dramatically again, you can bet there will be a stampede to the exits of investors wanting to preserve what they have left. Just like the market of back in the 1930's, this market has seen a massive sell-off and a strong reflexive rebound. The same pattern occurred back then and was followed by a massive leg down. Now, obviously we're not in the Great Depression, but we've certainly been in the great recession. While the severity of that 1929-1933 bear market might not be replicated, there are still chances we could see the massive swings so often associated with bear markets.

Again, this is only to highlight possible historical similarities and is not meant to be some harbinger of doom. In the markets, it always pays to be nimble and to avoid complacency. Keep your eye on the fibonacci retracements and the overarching technical pattern of the stock market for clues as we go forward. As they always say, the trend is your friend.

Carl Icahn Adds Take Two Interactive (TTWO) Shares Again

We just recently alerted you to the fact that 'corporate raider' Carl Icahn had bought more Take Two Interactive (TTWO). Well, he has added to his position again. Icahn purchased 300,000 additional shares at a price of $9.18 on February 5th. Then on February 8th, he purchased 800 more shares at $9.21. After all is said and done, Icahn now owns 10,873,033 shares through his various investment vehicles. We've detailed all his past activity, including how Icahn exercised calls on TTWO a few weeks ago and ramped up his initial stake. He is certainly positioning himself to institute change at the company in order to generate returns for shareholders and we'll see how it turns out.

Taken from Google Finance, Take Two Interactive is "a global publisher, developer and distributor of interactive entertainment software, hardware and accessories. The Company operates in two segments: publishing and distribution."

Recent Hedge Fund Performance Numbers

Embedded below is a round-up of recent performance numbers from a bunch of prominent hedge funds:

Thanks to Dealbreaker you can download the .pdf here.

Hedge Fund Prologue Capital: US Recovery Playing Out (Investor Letter)

Today we present you with hedge fund Prologue Capital's January investor letter. In their latest market commentary, Prologue's Chief Economist Tomas Jelf covers their macro thoughts. In reference to the US economic situation, Prologue thinks that the recovery is playing out as they envisioned and have discussed in previous commentaries. They continue to expect positive signs throughout the first half of the year due to inventory lift and demand improvement. They also harp on the fact that the main thing to pay attention to is not job creation but rather the extent to which it will reduce unemployment. The hedge fund thinks that even in the most 'bullish' of scenarios for the economy, that the US will "have very substantial slack in the labor market throughout 2010 and well into 2011."

Prologue also makes special note of the situation in Europe and point out their economy has notably decelerated since their last investor letter. He also notes that the inflation outlook in Europe looks stable. In terms of inflation in the US, they largely expect the Fed to leave interest rates unchanged until possibly the fourth quarter. Inflationary expectations will remain low and then gradually begin to head higher.

Turning to the recent hot topic of sovereign defaults, Prologue thinks that the recent situation in Greece could possibly signal more danger. Regardless of future outcomes, they feel that government credit will be punished for some time going forward. They think greater risk premiums are in order for Portugal, Spain, and France relative to that of Germany, Netherlands, and Ireland. We've covered this notion before when we highlighted that hedge fund manager Kyle Bass of Hayman Capital was calling for sovereign defaults a long while ago.

Embedded below is hedge fund Prologue Capital's January letter to investors:

Click the 'download' button in the above document viewer to get the .pdf (RSS & Email readers will need to come to the site to do so).

We had also posted up Prologue's December investor letter where we learned they were fond of forward curve steepeners, so check out their macro thoughts there as well.

Hendry, Taleb & Faber: How To Invest $100 Million In 2010

At the recent Russia 2010 conference, an interesting question was posed: how would you invest $100 million for 12 months? The panel included hedge fund manager Hugh Hendry, black swan-er Nassim Taleb, and Marc Faber, among others.

Taleb presented a few ideas that he would allocate to the 'risky' portion of the portfolio. He likes a short of the S&P 500 and a long of precious metals (gold, silver, platinum) in a fixed ratio of around 1.5 to 1. He also suggests to buy an out of the money option on hyperinflation through a basket of instruments on gold, treasuries, etc. He doesn't care about inflation, he wants to possibly game the slim chance of hyperinflation. He says you will probably lose money on the play, but if you're right and hyperinflation hits, you can win huge. Lastly, he also says that you should be shorting US treasuries, something we've seen numerous prominent hedge fund managers recommend.

Hendry then took the mic and was his usual entertaining self. He focused on how everyone at the conference had a different opinion and he was sick of opinions, saying "Who cares about that opinion? You pay people for what they do with that opinion." And he brings up a very good point. It's one thing to have a trade idea or research, but it is quite another thing to execute it. We've postulated that this could potentially be the problem over at Peter Thiel's global macro hedge fund Clarium Capital as they've had a rough past two years.

Hendry says that he doesn't even need to spend all the $100 million to invest, but rather just a tiny amount of it. He simply underwrites the risk that the Bank of England will cut rates further. He takes the proceeds from this and uses it to cheapen an option that bets against the English central bank raising interest rates over the next four months. If they raise rates, all he loses is his premium, which is not a lot. However, if nothing happns, he can make five times his money. It's all about the risk/reward skew. He also mentioned that he had a John Paulson-esque play where you could make 75 times your money and only risk a tiny amount, but he teased the audience and said he'd save that for another time. We've previously covered some of Hendry's hedge fund commentary on the site as he's been the resident deflationist.

Some of the answers from other panelists were also intriguing as they favored emerging market consumer plays. They also recommended avoiding: credit, real estate (especially commercial) in the western world, as well as western financial institutions.

We highly recommend watching the video of the hour-long panel here.

E*Trade Superbowl Commercial: Milkaholic

E*Trade has had a few good commercials featuring their babies over the years and here's the latest video from the SuperBowl if you missed it:

And on a market related note, we see that E*Trade has recently jumped into the broker battleground by lowering their trade commissions to compete with the likes of Fidelity, Charles Schwab, and TD Ameritrade. This competition is good all around for retail traders and investors.

Tuesday, February 9, 2010

Woodbine Focused On Dispersion Between Emerging & Industrialized Worlds

Earlier this morning, we posted up five investment themes in Woodbine Capital's portfolio. Next, we're taking a look at this global macro hedge fund's outlook. As the title notes, their portfolio has been focused on the dispersion between the emerging and industrialized worlds.

Macro Takeaways

We wanted to quickly compile some of Woodbine's prudent macro takeaways from their December 2009 investor letter. Woodbine notes that current market sentiment is targeting a US-driven global expansion and they see this as unlikely. They highlight the fact that the discrepancy between developed markets and emerging markets is rising and should not go unnoticed. Woodbine does not think that sovereign credit issues in the developed world will deter further global expansion.

Josh Berkowitz's hedge fund goes on to note that, "The follow-through of an inventory-led upturn to broader activity is far more dependent on healthy balance sheets, which allow accommodative monetary and fiscal policies to influence private activity."

In order to see growth, they shift their focus specifically to the countries of Brazil, China, India, Indonesia, Korea, and Turkey and mention that these countries need to, "embrace their leadership position with a virtuous cycle of stronger exchange rates, lower import prices, lower domestic interest rates, and stronger domestic demand."

In terms of future investment themes, they've identified a candidate in the form of emerging market policy decisions that will be focused on higher exchange rates, trade surpluses of smaller size, and strong domestic demand. In terms of potential risks, they think that deflationary pressure in the US could be more persistent than most fear. In order to guard against this risk, you can look at downside strikes in long duration swap yields. They feel that inflationary fears are overblown as these pressures "will be restrained by the long workout in the major economies, with large relative price shifts in favor of capital goods utilized by the emerging world." Additionally, they admit that sovereign fiscal issues pose a potential risk. In order to help protect from this, they suggest going short the euro against the Swiss franc.

Overall, hedge fund Woodbine Capital's 2010 outlook is focused on the continued global expansion driven by emerging markets as they believe developed countries will lag. Woodbine now has $2.5 billion in assets under management and finished 2009 up 13.15%. Make sure to check out our other piece from this morning detailing their five current investment themes. We've previously covered some past resources from the global macro hedge fund as well, including their thoughts on a possible early cycle slowdown and their piece on Gold: The Anti-Goldilocks.

Hedge Fund Woodbine Capital's Five Current Investment Themes

Josh Berkowitz and Marcel Kasumovich founded Woodbine Capital, a global macro hedge fund in January of last year after leaving George Soros' hedge fund firm Soros Fund Management. Previously, we'd seen Woodbine's thoughts on the often talked about precious metal in their commentary, Gold: The Anti-Goldilocks. In their recent December 2009 letter to investors, we got a glimpse at five current investment themes that Woodbine is playing in its portfolio that are detailed below. Additionally, we covered some of their macro takeaways in a separate post.

1. Exit strategies from monetary policies: In order to play this, they are long fixed income and long exchange rates in regions that have seen aggressive exit strategies. In this aspect, they are fond of Israel, Norway, and Australia. They write, "Emerging markets and countries benefiting from their demand recovery will be exiting from accommodative policies faster than others." What's also interesting here is that the market believes an interest rate increase will occur by July and that a return to historically normal short rates is expected over the next three years. They disagree with both of those notions.

2. Fiscal consolidation: To play this theme, they have bullish risk positions in countries like Hungary and bearish risk positions in countries like the UK (with the bulk of their focus on reactive countries). They note that tightening is moving away from developing countries to industrialized countries and they are "implementing spread trades to capture relative mispricing of sovereign credit risks."

3. Capital goods divergence: This is a newer theme that they've added and they are playing it by trying to capture the mid-cycle capital goods expansion and are focused on emerging markets. Berkowitz's hedge fund is "long capital goods providers tied to the emerging world and short companies providing capital to sectors in industrialized countries with excess supply." In emerging markets specifically, they like energy and agriculture as a long and they would like to be short "overstocked capital goods in the industrialized world." They specifically cite apartment REIT companies that are reporting price declines yet are priced for growth as short candidates.

4. Emerging market demand: They have bullish Asian forex positions here and think stronger currencies will be found in countries that will be forced to raise rates. They take their thoughts one step further by saying that, "financial intermediation will remain at the core of the next global expansion. Boring banking is back ... and we see the bulk of these opportunities residing in emerging markets. It is not the banks themselves that present the most efficient investment opportunity, but rather the areas where the banks are lending that will provide beta in the cycle." They are likely to increase their exposure to equity markets if exchange rate policies in Asia adjust and they also outline an example of shorting the US dollar against the Chinese yuan in short dated tenors.

5. Dispersion: Lastly, we see that Woodbine has also added this other new theme to its portfolio and they are shorting volatility in areas where there is excessive premium and in turn are buying tail risk options. They write that, "Structures to capitalize on elevated USD-JPY volatility are one component of the dispersion theme."

Overall, they sum things up by saying, "After last year's correlated upturn, our focus is on the implied dispersion between the emerging and industrialized worlds. That's the common thread across the themes in our portfolio." They also mentioned that future themes will include emerging market policy decisions that will be focused on higher exchange rates, trade surpluses of smaller size, and strong domestic demand.

In his three years at Soros before starting Woodbine, Berkowitz returned an annual average of 34% net of fees. Woodbine is already closed to new investors as they started with $185 million and now have $2.5 billion in assets under management. They ended 2009 up 13.15% and we are tracking them for solid perspective on the global macro arena. For more insight from Woodbine, head to their earlier thoughts on a possible early cycle slowdown and their piece on Gold: The Anti-Goldilocks.

Before everyone gets their knickers in a twist asking for the letter: we apologize, but we are not allowed to post it and figured a summary was better than nothing. Stay tuned for a second post this morning for some of Woodbine's global macro takeaways.

Galleon Group's Raj Rajaratnam: Interview From 1997

We recently stumbled across an intriguing interview from HedgeFundNews with Galleon Group hedge fund manager and accused inside-trader Raj Rajaratnam from over a decade ago in 1997. This interview becomes all the more interesting when you look back at it with the bias that is prevalent now.

We've covered Galleon Group's demise as we posted back when Rajaratnam was charged and announced he was winding down the funds. Given all that has taken place, let's take a spin in the old time machine and head back to 1997 where Rajaratnam was interviewed a mere three months after founding Galleon (all bold emphasis is ours):

"Q. Could you describe your research process and where you see your edge?

A. We build the portfolio from the bottom-up, looking at sectors and within the sectors looking at companies. We have three analysts/portfolio managers who visit with approximately 400 companies every year. We all spend about a week a month on the West Coast doing that. Secondly, we have a network of 60 to 70 technology executives who are investors in our fund and they are a great resource to bounce ideas off. If we ask any of them which of their customers and suppliers are doing well or badly, we get four stock ideas, two on the long side, two on the short side. Also, we are engineers by training and have some understanding of technology.

Q. Could you describe the adjustment to being on your own and where would you like to take your business in terms of organization and assets under management?

A. One of the primary reason I left Needham was to focus on the investment management side. I was spending two to three hours a day as a shrink, dealing with people issues, organizational issues and strategic planning issues. It is a refreshing change to be able to focus on what I enjoy doing. Our assets are going to be limited by our ability to perform. If we find that we can't manage $400 million, we will go back to $250 million because I know we can manage that. At some point, you stop working for money, you work for pride. We want to win, we want to be the best investors in this emerging growth sector. Long term, what I would like to do is to build a technology fund as well as a healthcare fund and maybe a consumer/retail fund so that we offer investors broad exposure to the emerging growth sector."

Head here for the rest of the interview. It's interesting to look back and see his desire to become the "best investor" right from the get-go seemingly at all costs. It's been well documented that Galleon Group had a wide network of industry contacts and this interview from over a decade ago shows he utilized them to his advantage. For past resources on Rajaratnam, we took a look at Galleon Group's historical returns and had previously posted Galleon's September 2009 commentary.

Technical Analysis Weekly Watchlist

We haven't posted the OptionAddict's technical analysis weekly watchlist of stocks and charts to watch for some near-term swing trading setups in a while, so here's the latest edition.

Embedded below is the video:

Past technical analysis posts include the Nasdaq breaking a major trend line and how you can watch Apple (AAPL) and the market generals for tells.

Monday, February 8, 2010

Bill Ackman & Pershing Square's Kraft Presentation (KFT)

We recently covered that Bill Ackman's hedge fund Pershing Square Capital Management had a new largest holding: Kraft (KFT). While Ackman gave us some insight as to his rationale for owning KFT in his recent interview, we now have a more detailed look into Pershing's bullishness. Ackman gave the presentation below last week at the Boys and Girls Harbor Investment Conference. (This morning, we posted up some other investment presentations from the event as well).

Pershing bought shares of KFT before its acquisition of Cadbury (CBY). They believe this is a solid acquisition at a fair price that "will be transformational." Kraft is the second largest food company in the world and Pershing thinks the addition of Cadbury will improve Kraft's business quality and organic growth. Not to mention, it has a nice 4% dividend yield. Embedded below is Bill Ackman's presentation on Kraft:

You can download the presentation via .pdf here.

For more investment insight and presentations from Bill Ackman's hedge fund Pershing Square, head to their analysis on General Growth Properties (GGWPQ), Bill Ackman's recent appearance on television, as well as all our previous coverage of Pershing.

Stephen Mandel's Lone Pine Bullish On Education Plays

In a 13G filed with the SEC, Stephen Mandel's hedge fund Lone Pine Capital has disclosed an updated stake in New Oriental Education (EDU). Per the filing, they now have a 6.5% ownership stake with 9,916,436 shares of common stock based on direct ownership of 2,479,109 American depositary shares (ADRs).

The filing was made due to activity on January 26th, 2010 and is a large increase over their previous stake. Back on September 30th, they owned 486,828 shares when we looked at Lone Pine's portfolio. They'll be filing updated portfolio disclosures in their 13F filing and we'll cover that when it becomes available. We've known Mandel and his fund to be bullish on education plays as they have additionally been long Strayer Education (STRA).

In Mandel's recent commentary, he noted that Lone Pine is focused on investments in outsourcing, smartphones, emerging market consumer-driven companies, national and global financial service leaders and internet-enabled business disrupters. Conversely, they are shorting companies that have been hurt by technological obsolescence and companies in industries with global overcapacity. Their main fund, Lone Cypress, returned 17.7% for 2009.

In the past we've detailed some of Lone Pine's other holdings, including a position in MSCI (MXB) and also a stake in Green Mountain Coffee Roasters (GMCR). Additionally, we've looked at their UK positions as well.

Taken from Google Finance, New Oriental Education is "a provider of private educational services in the People’s Republic of China. The Company offers a range of educational programs, services and products consisting of English and other foreign language training; test preparation courses for admissions and assessment tests in the United States, the People’s Republic of China and Commonwealth countries; primary and secondary school education; development and distribution of educational content; software and other technology, and online education."

T2 Partners Presentation: General Growth Properties (GGWPQ), Iridium (IRDM) & Berkshire Hathaway (BRK.A)

Recently, Whitney Tilson and Glenn Tongue's hedge fund T2 Partners gave a presentation at the Boys and Girls Harbor Investment Conference that took place on February 3rd, 2010. Their presentation included a look at the macro situation and three stock picks: Berkshire Hathaway (BRK.A), General Growth Properties (GGWPQ), and Iridium (IRDM). When we covered T2's investor letter, we saw that they had large long positions in all three names.

Embedded below is T2's recent presentation on all three stocks:

You can download the .pdf here.

Additionally, last week we posted Whitney Tilson & T2 Partners' analysis of Berkshire Hathaway (BRK.A / BRK.B). Below you will find their revised slide-deck:

You can download the Berkshire presentation via .pdf here.

In a separate post this morning we'll also be covering Bill Ackman & Pershing Square's presentation on Kraft (KFT) from the same investment event, so stay tuned.

Hedge Fund Pequot Capital's 13F Filing: One Position Left

Hedge fund portfolio disclosures are starting to come in via 13F filings for the fourth quarter 2009 and this one surprised us. A while back we mentioned that Art Samberg's hedge fund Pequot Capital was shutting down and we already covered their portfolio unwind. Interestingly enough, Pequot Capital has filed their latest disclosure and they still own one last position: 212,821 shares worth of InterOil (IOC) worth $16.3 million.

We just thought we'd highlight it for those interested, as it seems this would be their last position left to unwind. And speaking of InterOil, when we looked at Whitney Tilson's investor letter, we saw that his hedge fund T2 Partners was short IOC.

Taken from Google Finance, InterOil is "an integrated energy company operating in Papua New Guinea. The Company operates in four business segments: Upstream, Midstream, Downstream and Corporate."

Bruce Berkowitz's Fairholme Fund: Portfolio Update (Fourth Quarter 2009)

Bruce Berkowitz and the Fairholme Fund (FAIRX) have updated their portfolio disclosures for the fourth quarter of 2009 and we're here to cover the major changes in their 13F filing. Previously, we had covered how Berkowitz liked healthcare plays. This still remains the case as they are littered within his portfolio. Berkowitz along with prominent hedge fund managers will be presenting investment ideas at the Value Investing Congress May 4th & 5th in Pasadena and we highly recommend attending. We've secured a discount to the event for our readers so make sure to use discount code: P10MF5.

Let's get right into Fairholme's portfolio changes from the fourth quarter 2009 (as of 12/31/09):

New Positions
Burlington Northern Santa Fe (BNI)
Citigroup (C)
RSC Holdings (RRR)
Winthrop Realty Trust (FUR)

Increased Positions
Berkshire Hathaway (BRK.A): Increased by 130.3%
WellPoint (WLP): Increased by 82.3%
Berkshire Hathaway (BRK.A): Increased by 62.8%
Humana (HUM): Increased by 23.9%

Reduced Positions
Pfizer (PFE): Reduced by 77.4%
United Rentals (URI): Reduced by 41.5%

Top 15 Holdings by percentage of portfolio

  1. Sears Holdings (SHLD): 12.45%
  2. Berkshire Hathaway (BRK.B): 8.71%
  3. AmeriCredit (ACF): 7.58%
  4. St. Joe (JOE): 7.41%
  5. Humana (HUM): 7.30%
  6. WellPoint (WLP): 6.84%
  7. Burlington Northern (BNI): 6.28%
  8. Hertz Global (HTZ): 6.27%
  9. Citigroup (C): 5.75%
  10. Spirit Aerosystems (SPR): 5.52%
  11. Forest Laboraties (FRX): 5.27%
  12. Berkshire Hathaway (BRK.A): 5.08%
  13. Pfizer (PFE): 4.05%
  14. Leucadia National (LUK): 3.37%
  15. Ensign Energy (ESVIF): 2.14%

So, there are really two major changes in Berkowitz's FAIRX portfolio worth noting. Firstly, he boosted his holding of Berkshire Hathaway by purchasing large quantities of both the A and B shares. Berkowitz is certainly not alone in his bullishness for shares of BRK.A & BRK.B as we saw in hedge fund T2 Partners' analysis of Berkshire as well. Secondly, Berkowitz sold off a large portion of his Pfizer (PFE) stake. PFE had previously been his largest holding and even after the sales, it still represents 4.05% of the portfolio. Overall, 25.3% of Berkowitz's portfolio is invested in healthcare.

We also saw some intriguing news out of the Fairholme Fund that wasn't included in their 13F filing because it was not an equity play. Berkowitz has purchased over $500 million worth of General Growth Properties' (GGWPQ) unsecured debt, over $394 million worth of General Growth convertible bonds, a $110 million tranche loan, and $94 million worth of Rouse bonds. In all, this General Growth position makes up over 5% of Fairholme's portfolio.

So, Fairholme joins the army of other prominent investors that are bullish on the prospects for GGP as it emerges from bankruptcy. Bill Ackman's hedge fund Pershing Square has been long GGP for a while and outlined their analysis in-depth numerous times. Whitney Tilson's T2 Partners also holds a large GGWPQ stake. Possibly the most intriguing aspect of Berkowitz's new play is that he did not purchase equity, at least as far as we can tell. He seems to like the debt as a more attractive play here. For possible rationale as to why he favored the debt, head over to Todd Sullivan's ValuePlays for his analysis as he's provided great in-depth research on the entire situation.

Below is a video of Berkowitz commenting on his recent acquisition:

Overall, some intriguing portfolio moves out of Fairholme. Make sure to check out Berkowitz and various hedge fund managers at the upcoming Value Investing Congress with the discount we secured for our readers using code: P10MF5.

Sunday, February 7, 2010

Carl Icahn Buys More Take Two Interactive (TTWO)

In an SEC Form 4 filed on shares of Take Two Interactive (TTWO), we see that rabblerouser Carl Icahn has boosted his stake. On February 2nd, Icahn through his various investment vehicles added 78,681 shares at a price of $9.21 per share. Then, on February 4th, Icahn added 280,000 more shares at a price of $9.24. After all his purchases, Icahn now owns 10,572,233 shares of Take Two Interactive. This activity comes after Icahn exercised calls on TTWO a few weeks ago and ramped up his initial stake.

Additionally, in late January Icahn's three board nominees were added to Take Two's slate of nominees for the 2010 annual shareholder meeting. Although portfolio disclosures are about to be updated, we see that some other prominent hedge funds hold large stakes in TTWO in addition to Icahn. Mario Gabelli's GAMCO Asset Management owns 2,516,000 shares and Larry Robbins' Glenview Capital Management owns 3,370,723 shares. Last week we presented Robbins' thoughts on global equities from a hedge fund panel.

Carl Icahn runs hedge fund Icahn Partners and focuses on activist investing where he seeks to implement change at various companies. We've covered his movements on the site in the past and back in October he laid out the idea to short real estate. In the past, we've also detailed some of his portfolio activity and his additional insight from his guest lecture at Yale.

Taken from Google Finance, Take Two Interactive is "a global publisher, developer and distributor of interactive entertainment software, hardware and accessories. The Company operates in two segments: publishing and distribution."