Friday, July 23, 2010

Certified Hedge Fund Professional (CHP) Designation: Exclusive Discount

The Certified Hedge Fund Professional (CHP) Designation opened for registration a few weeks ago and there are only 185 spots left in the program. Market Folly readers receive an exclusive $50 discount to the CHP, so take advantage of it while you can. Once those spaces are gone, registration will close until Spring 2011.

The CHP is a designation like the CFA or CAIA, except it is targeted specifically at the hedge fund industry and can be completed 100% online within 6-12 months. Once you complete the program, you will have boosted your credibility/resume, enhanced your knowledge of the industry, and will gain access to a huge networking group of professionals. Not to mention, you can use their job placement services and recruiting connections. Additionally, you'll have lifetime access to, as well as the webinars, study guides, and guidebooks. You can learn more about the CHP designation here.

Here are some testimonials from readers who have completed the CHP designation:

Andy R., Hedge Fund Manager: "As a former hedge fund manager looking to launch a new fund in the next year, I was intrigued by the prospect of increasing my knowledge and understanding of a variety of platforms, strategies, and new regulations that are likely to come through the CHP. I believe that this designation is long overdue way to separate the wheat from the chaff in an industry that, while currently in a down cycle, will remain as an integral component for financial planning and asset allocation in the future."

Sumeer Kapila, Technical Analyst: "(The) CHP Designation is a focused program, a program which details and provides inside information of the hedge fund industry's standards and strategies. The study guide provides you with the rules of the game, keeping you informed about the legal and regulatory perspective. This program helps you to keep the integrity of the market by raising industry standards."

Dominic Di Bernardo, Student: "I've taken this hedge fund certification program to expand my knowledge base of the hedge fund industry (there is little learned in school about this industry). I also believe that this designation will give me an edge over others trying to enter the industry. And lastly, I believe that I will be able to gain valuable contacts through this program, other designation candidates, and anyone else that stands behind this designation."

Keep in mind that the program comes with a 100% satisfaction guarantee or they will give you your money back. Click here to learn more about the CHP program & to receive the exclusive discount.

David Einhorn & Greenlight Capital: Long Apple, Ensco, NCR (Q2 Letter)

Dealbreaker posted up hedge fund Greenlight Capital's second quarter 2010 letter and we wanted to highlight the latest portfolio moves from David Einhorn's camp. Year to date for 2010, Greenlight's funds are up 1.6%, 2.2% and 0.8% respectively. Some of their portfolio gains as of late can be attributed to their long position in physical gold as well as their short of Moody's (MCO). It sounds as though Greenlight will maintain this short position as well, writing "we believe that an eventual, but likely, legal loss will have a significant impact on MCO shares."

While David Einhorn will be presenting investment ideas in October at the upcoming Value Investing Congress (special discount here), we still get an intermediate update on his current portfolio. The main talking point in the hedge fund's letter is their revelation of various new positions. Firstly, they revealed they are long Apple (AAPL) at an average purchase price of $248.09 per share. Greenlight highlights the company's more than $40 per share in cash and thinks that while growth in the next few years will be slower than recent times, the company still has not fully penetrated its various markets. We've highlighted numerous times how AAPL is one of the most popular hedge fund holdings.

Secondly, Greenlight took a new position in African Barrick Gold (LON: ABG). They like that it trades "at less than 6x 2010 EBITDA, a 10% free cash flow yield and $200 per ounce of reserves." Einhorn previously talked about this new stake in his Ira Sohn Investment Conference presentation.

Thirdly, Einhorn touches on their new stake in Ensco plc (ESV). While we revealed Greenlight's ESV stake last week, we now get some color on their thesis. They point out the company's $7 per share in net cash and tangible book value of $37.50. They feel shares of ESV were unjustly sold off as it was not involved in the oil spill and the drilling moratorium should not affect the company's long-term potential. Greenlight's average purchase price of Ensco was $39.41.

Lastly, Greenlight Capital purchased a stake in NCR (NCR) in the second quarter as the stock sold off due to accounting losses on pension obligations, among other reasons. Einhorn points to NCR's strong cash flow generating business and strong net cash balance sheet position. Greenlight purchased NCR at $13.58 per share and MarketFolly actually revealed this stake back in May when Greenlight acquired it.

In terms of positions the hedge fund sold completely out of, we see that they have finally exited their short of Allied Capital (AFC). Their commentary next to this position jokingly says, "So much to say we could write a book about it." If you're unfamiliar, David Einhorn did write a book on this very short-selling battle entitled, Fooling Some of the People All of the Time.

Embedded below is the entire second quarter letter from hedge fund Greenlight Capital:

You can download a .pdf copy here.

Greenlight's top five largest disclosed long positions are: CIT Group (CIT), Ensco (ESV), gold, Pfizer (PFE), and Vodafone Group (VOD). While shares of Pfizer (PFE) continue to trade lower and lower, Greenlight still owns their stake as they feel the company deserves to be trading at a higher earnings multiple than current levels. Remember that you can hear David Einhorn's newest investment ideas at the upcoming Value Investing Congress (special discount here) where he and other top hedge fund managers will be presenting in October.

Market Strategist Jeff Saut on Risk Management Principles

Market strategist Jeff Saut is out with his latest investment commentary entitled, "Don't bet the farm." In it, he lays out some basic risk management principles. The first of which, obviously, is to not bet the proverbial farm on any one scenario, no matter how good it looks. Managing downside risk is the key to success in markets. Louis Bacon, famed hedge fund manager at Moore Capital, will be the first to tell you that. Saut also believes that portfolio rebalancing is one of the tenets of successful investing. This whole conversation is an extension of his commentary last week where proclaimed risk adjusted stock selection is a key to portfolio success.

You can read his entire investment strategy for the rest of his thoughts on risk management but we wanted to touch on his latest market thoughts as well. Saut highlights an excerpt from Lowry's Selling Pressure Index, who writes, "When selling pressure begins to consistently contract, despite new los in the major indexes, such a divergence usually indicates the desire to sell has been largely exhausted; and, the end of the decline may be near at hand." That would certainly prove to be the case (at least in the near-term), given that the market rallied 200 points on Thursday.

The Raymond James Chief Investment Strategist continues to watch the S&P 500's 200 day moving average with a watchful eye. Saut feels that until a breakout to the upside of this level occurs(around 1,112 on the S&P), he is quite happy to remain flat in trading accounts and to position favorable stocks in investment accounts. He continues to pound the table on large cap blue chips such as Walmart (WMT), Intel (INTC), Enterprise Products Partners (EPD), Allstate (ALL) and Microsoft (MSFT). One thing's for certain: many smart investment firms advocate buying high quality stocks as of late.

Embedded below is Jeff Saut's latest weekly market commentary:

You can download a .pdf copy here.

Be sure to also check out Saut's previous thoughts on risk management and keys to portfolio success in 2010.

Hedge Fund Brevan Howard's June Economic Update

UK based hedge fund Brevan Howard is out with their monthly market commentary, providing economic updates across the globe. In their June 2010 outlook, they highlight how risk appetite quickly faded after everyone seemed to have re-risked much throughout 2009. Year to date for 2010, Brevan Howard's BH Global Limited is up 0.20%. While many other hedge funds turned in horrible performance in May, Brevan Howard suffered only minor losses, down only -0.06% in that month. Brevan Howard of course is one of the world's largest hedge funds.

Focusing on the US economic climate specifically, the hedge fund opines:

"In June, risk appetite faded further in response to domestic as well as foreign threats to expansion. Most notably, investors began to question the sustainability of the recovery due to stalled consumption spending, housing roll over, and the downshifts in the labour market.

After having surprised on the upside earlier in the year, retail sales have slowed to a crawl in the last two months and prior consumption data has been revised down. The more muted trajectory of spending better aligns with our macro view, which emphasises the headwinds from lacklustre income growth, stagnant wealth and credit constraints. Housing has suffered from a hangover after the expiration of government subsidies. Furthermore, although mortgage rates are approaching record lows, we believe that housing demand will continue to wane due to excess supply, the fear of price declines and tight credit conditions. In the labour market, job creation stepped down as businesses evidentially remained cautious about expanding payrolls. Meanwhile, layoffs have moved sideways at an elevated level. The labour market continues to be our central focus, so recent developments are definitely causes for concern. Nevertheless, we believe the risks of a double-dip recession are overblown.

Not all the news is bad as productivity growth has been well maintained. Remarkably, businesses are still able to find ways to rein in labour inputs in order to enhance profits. One area where firms have relaxed the purse strings is capital expenditures, which have been impressive this year. Manufacturing production has been especially robust although more moderate gains are in store as the inventory cycle matures.

Wage and price pressures continue to be absent and the biggest risk to the outlook remains the threat of deflation. Investors have come to appreciate these risks as breakeven inflation has collapsed. Survey measures on inflation are steadier, but without a reliable understanding of the expectations formation processes, we are wary of the reassurance they provide.

Finally, the negatives in the macro data have spawned a debate about fiscal and monetary policy options. Fiscal expansion is constrained by investor and voter concerns about yawning budget deficits. Much attention has been focused on the Fed restarting large scale asset purchases, but those lack punch when markets are functioning and Treasury and mortgage rates are already at or near record lows. Other options are politically risky for the Fed, for example buying municipal bonds, or simply not legal, for example buying equities. Without positive alternatives, the Fed will have to rely on pinning down the short rate near zero for an even longer "extended period."

So the hedge fund definitely thinks the US will need to keep rates low in order to fan any current signs of a recovery. It's always good to see a top down macro assessment of the US' situation from a prominent hedge fund on the other side of the globe. Fellow UK based global macro fund Prologue Capital shares their cause for concern. While Brevan Howard didn't address any specific portfolio positions, those of you looking for particular investments can head to Perry Capital's most recent letter as well as East Coast Asset Management's bullish case on Becton Dickinson (BDX) to get your fix.

What We're Reading ~ 7/23/10

How the Masters of the Universe Melted Wall Street Down: Chasing Goldman Sachs [Suzanne McGee]

Tail risk, smooth returns, and investor democracy [Abnormal Returns]

Debt is still the problem & deflation is the painful solution [Pragmatic Capitalism]

On trading and poker [ChrisPerruna]

The bullish case on Lorillard (LO) [ValueHuntr ~ our readers receive a 15% discount to their Value Edge newsletter]

An interview with Jack Schwager, author of the popular Market Wizards books [CapitalIdeasOnline]

Hedge funds' hottest assets: the ladies of investor relations [NY Mag]

Why don't we all just do what Warren Buffett does? [CXO Advisory]

Google: growth, pricing power and valuation multiples [AboveTheCrowd]

Metrics for analyzing restaurant companies [StreetCapitalist]

Vitaliy Katsenelson's presentation on China [My Investing Notebook]

The top six game changing hedge funds [Big Think]

A chart of current deal spreads [Merger Arbitrage Investing]

The $4 trillion question [Big Picture]

Chart: possible Elliott Wave projection on the S&P 500 [Steve Puri]

Julian Robertson weights reopening Tiger Management to outsiders [WSJ]

Paulson & Co looks to launch retail fund [FT]

Today's market is missing valuation, fundamental metrics [Minyanville]

Phil Falcone's mobile venture will spend $7 billion on network [Bloomberg]

Thursday, July 22, 2010

Hear the Latest Investment Ideas From Top Hedge Fund Managers

If you want to receive stock picks and investment ideas from the very hedge fund managers we cover on this site on a daily basis, then this is the event for you: The Value Investing Congress. We've secured a special discount for Market Folly readers where you can receive an $1,800 discount to the event with code: N10MF4.

Long-time readers of the site will know that we frequently cover the portfolio moves of some of the top hedge fund managers in the game. Here's your chance to hear their latest investment ideas in person. Speakers at the Value Investing Congress on October 12th & 13th in New York include:

David Einhorn: His hedge fund Greenlight Capital has returned 22% annualized last we checked. At a past Value Investing Congress, he told attendees about his short position in Lehman Brothers. Obviously that play turned out very successful.

Lee Ainslie: At the end of 2009, his hedge fund Maverick Capital had returned 14.2% annualized since 1995. Maverick has grown from $38 million to well over $10 billion and is one of the premier fundamental stockpicking hedge funds out there.

Kyle Bass: He and his firm Hayman Capital have predicted two massive bubbles. Firstly, he predicted the subprime mess and profited handsomely. Secondly, he was one of the first to call for sovereign defaults, which we're starting to see play out. Find out his latest macro call at the upcoming Value Investing Congress (special discount here).

John Burbank: His hedge fund Passport Capital has had a volatile ride, but has managed to return 23.6% annualized. If you want some of the best plays based on macro themes, he's your guy.

Not to mention, other speakers at the event include: Mohnish Pabrai (Pabrai Investment Funds), J. Carl Cannell (Cannell Capital), Amitabh Singhi (Surefin Investments), Zeke Ashton (Centaur Capital), as well as Whitney Tilson & Glenn Tongue (T2 Partners).

Click here to receive a special $1,800 discount to the event with code: N10MF4. It takes place on October 12th & 13th at the Marriott Marquis in New York City. This discount expires in 8 days so take advantage of it while it lasts!

Is It Time To Buy Gold?

MarketClub recently took a technical look at gold and given that everyone is talking about the metal, we wanted to highlight their analysis. Pulling up a chart of the precious metal, Adam points out a potential double top at around 1,264 that took place in June. Since then, gold has sold off in a substantial manner, down to 1,179. He then pulls up the fibonacci retracement tool to identify very important levels in gold. Both the 50% retracement and the 61.8% retracement levels are important in the metal and here's why: both reside around previous support levels of 1,157 and 1,132. While gold could still possibly fall below these levels, he looks for those two areas to provide price support.

In their technical analysis video of gold, MarketClub also points out a previous bearish divergence in the MACD as it turned negative while gold still headed higher in May and early June. That divergence provided an early signal as gold began to decline in late June. Adam thinks a divergence to the upside is about to take place and an entry point into a gold long should be coming. Keep in mind, though, that he still feels gold will trade down/sideways in the very near-term. The buy level he is looking for is between 1,132 and 1,157, which implies some further downside. Those levels, coupled with confirming indicators, could provide an excellent entry he feels. Click the video below to watch his analysis on gold:

Hedge Fund Glenview Capital Raises Stake in Punch Taverns (LON: PUB)

Larry Robbins' hedge fund Glenview Capital has been quite busy with notable portfolio activity as of late. A few days ago, we detailed how Glenview had been aggressively adding shares of PHH. This time around, they've disclosed activity in UK markets. Due to trading activity on the 16th of July, 2010 Glenview Capital has disclosed an increase in its stake in Punch Taverns traded on the London Stock Exchange (LON: PUB). They now own 10.37% of the shares outstanding. This is up from their previous stake of 9.51% disclosed back in January of this year. Interestingly enough, over 80% of their position is via derivatives in the form of total return swaps.

Yet again, we see a divergence of opinion between prominent hedge fund managers. While Robbins has recently added to his PUB position, we highlighted back in November how David Einhorn's Greenlight Capital had reduced its stake in Punch Taverns. Given the amount of time that has elapsed, Robbins must see some sort of opportunity here. In fact, Glenview Capital fancies UK pubs in general, as they also own 12.27% of the shares outstanding of Enterprise Inns (LON: ETI). For more of this hedge fund's investments, be sure to the rest of Robbins' recent stock picks, as well as his thoughts on global equities in 2010 at a hedge fund panel.

Taken from Google Finance, Punch Taverns is "engaged in the operation of public houses under either the leased model or as directly managed by the Company. The Company operates in two business segments: punch partnerships, a leased estate and punch pub company, a managed estate. Punch Partnerships is the Company’s leased division, comprising 6,841 pubs nationwide. Punch Pub Company is its managed division, comprising 835 pubs nationwide."

Be sure to check out the rest of our coverage of hedge fund positions in UK markets.

John Paulson Reduces Centamin Egypt Position

John Paulson's hedge fund firm Paulson & Co has reduced its stake in Centamin Egypt to below 5% (the company is traded in London under the ticker CEY and on the pink sheets as CELTF). Centamin is a mineral exploration and development company focused in Egypt and has over 13 million ounces of gold resources at its Sukari gold project, one of the largest single deposits outside of the majors. While the rationale behind Paulson's sale is unknown, he has certainly fared well on this investment, earning approximately 200%. Given that this was a gold focused investment, it most likely was a part of Paulson's gold fund.

Regulatory disclosures in UK markets only require that Paulson reveal when his position goes below a 5% stake. As such, it's unclear as to whether or not he merely sold below that level or sold out of this position entirely. Unfortunately, we won't know unless Paulson & Co provides some sort of commentary on the matter. Back in February of 2009, Paulson's stake in Centamin Egypt was as high as 11.16% of shares outstanding. Conclusively, one thing is certain: Paulson has reduced his stake.

John Paulson of course became well known in the financial world for his bet against subprime and his amazing story is detailed in The Greatest Trade Ever. While he had modest beginnings as a merger arbitrage fund manager, he has since expanded to various other strategies including his gold fund and a recovery fund. For the rest of his equity positions, head to John Paulson's portfolio.

Wednesday, July 21, 2010

Consensus Versus Variant Perception in the Markets: East Coast's Q2 Letter

We're pleased to present the second quarter 2010 commentary from East Coast Asset Management. The letter, penned by Chief Investment Officer Christopher Begg, touches on a number of intriguing and hotly debated topics, including inflation. Some of you will recall that we featured some past commentary from East Coast where they examined the deflation-reflation continuum.

East Coast is decisively in the inflationist camp. They believe that central banks armed with printing presses can only lead to one outcome. Their portfolio is positioned to mitigate the effects of any tail risk events such as hyperinflation, a bond bubble, a spike in interest rates, paper currency debasement, and a double dip recession. You'll recall that Baupost Group's Seth Klarman has also protected his portfolio from tail risk events as a form of cheap insurance.

Summarizing East Coast's stance, Begg writes, "The greatest opportunities to compound capital come from periods where dislocations are being driven more by 'what ifs' than the 'what is'. Fundamentals trump hypotheticals and facts weigh heavier than emotions."

Maybe the most intriguing aspect of their commentary though is the list of consensus views they've compiled. They've outlined 10 areas where there are currently consensus views in the market; areas where East Coast has strafed away from the crowd and into an opportunity with a perceived edge. They see these variant opportunities as a means to mitigate risk away from the consensus. This is a topic we've very briefly touched on in our piece where we examined the hedge fund herd mentality.

Below is East Coast Asset Management's list of 10 consensus views and their corresponding variant perception:

1. Consensus: Everyone is a macro-economist. Variant Perception: Fundamental/value investing and focusing on micro themes is the key.

2. Consensus: Binary extreme outcomes of inflation/deflation. Variant Perception: Individual investment merits based on expected return.

3. Consensus: Flood to fixed income as individual investors chase yield. Variant Perception: Bond bubble. Attractive equity total return expectations.

4. Consensus: Inflation protection via TIPS. Variant Perception: Owning businesses with pricing power.

5. Consensus: Gold - speculators are weak holders. Variant Perception: Own gold for mid-long term as paper currencies are debased. John Paulson started his gold fund for the exact same reason: as a bet against the US dollar.

6. Consensus: Overly bearish. Variant Perception: Bullish on fundamentals.

7. Consensus: Short-term time horizons. Variant Perception: Mid-to-Long term time horizons.

8. Consensus: Low rates will be the norm. Variant Perception: Interest rates will dramatically rise across the curve. (Legendary hedge fund manager Julian Robertson had previously placed a bet on sharply rising interest rates).

9. Consensus: Inferior companies can thrive. Variant Perception: High quality companies have a competitive advantage. East Coast specifically highlights Nestle (NSRGY), Waste Management (WM), Colgate (CL), Coca Cola (KO), Novartis (NVS), and Express Scripts (ESRX). We've seen numerous hedge funds become bullish on high quality companies as well. In particular, Andreas Halvorsen's hedge fund Viking Global favors ESRX. Additionally, we earlier today highlighted East Coast's bullish stance on Beckton Dickinson (BDX).

10. Consensus: Complexity. Variant Perception: Simplicity.

Begg examines each of the ten above listed views in-depth in his most recent letter and ends his commentary by giving us a view of their most recent portfolio construction. We highly recommend reading the entire East Coast second quarter letter embedded below:

You can download a .pdf copy here.

For more from East Coast Asset Management, be sure to check out their recent bullish presentation on Becton Dickinson (BDX) that we posted earlier today. Additionally, those intrigued by the inflation/deflation debate should head to their past piece on the deflation-reflation continuum. For more great investment commentary we posted up Perry Capital's latest letter yesterday as well.

The Bullish Case on Becton Dickinson (BDX) From East Coast Asset Management

East Coast Asset Management is out with an in-depth presentation on Becton Dickinson (BDX). They lay out the bullish case for the company and assume that if you hold it for three years that an internal rate of return (IRR) on BDX if purchased now would be 17.6% annualized. This is not the first time we've covered commentary from this firm as we previously highlighted their deflation-reflation continuum debate. We're excited to bring you their latest market commentary as well as their presentation on Becton Dickinson. So, how do they come to this conclusion on BDX?

Let's first start with the thesis behind this play. Anant Ahuja, Christopher Begg, and Jack McManus have laid out the model for East Coast Asset Management and point out that Becton Dickinson is a niche business with a diverse set of products aimed at capitalizing on the increasing amount of aging baby boomers. Shares have been under pressure due to concerns over exposure to Europe, weak 2009 sales, and unfavorable foreign exchange trends.

The stock currently trades at 8x EV/EBITDA, well below the historical 5 year average of 10.1x EV/EBITDA. They argue that the business has an intrinsic value of $90-95 per share, representing 35-40% upside in the stock. East Coast highlights that Becton Dickinson has an impressive past of shareholder value creation. Over the past five years, BDX has seen 23.5% ROIC, 22.2% ROE, EPS CAGR of 15.8%, and 37 consecutive years of dividend increases. Not to mention, the company has repurchased a consistent amount of shares, with $450 million allocated this year. Given that these are attributes Warren Buffett often likes to see in a business, it should come as no surprise that his Berkshire Hathaway added to its BDX position in the first quarter.

East Coast says that, "the market, in its predictable myopia, has oversold BD out of concerns and speculation over matters that are not implicit in the underlying metrics of the core business." East Coast Asset Management argues that at current share prices, the company is being valued at a future free cash flow of only ~ $4.50 per share. Ahuja, Begg, and McManus wager that this is a floor in valuation as this assumption infers no capital expenditure being allocated toward growth. Their estimates fancy that the business is worth closer to $92 per share (compared to the $67 per share it's trading at currently).

As with any investment, there are also risks involved. They try to highlight these potential headwinds by outlining a possible rise in input costs, a medical device excise tax, as well as low cost manufacturers in other emerging markets thwarting business. Despite these reasons and others listed in their presentation, East Coast Asset Management is confident that the current share price is mainly a "result of macro fears and lack of granular clarity in the short term."

Embedded below is East Coast's twelve page presentation on Becton Dickinson (BDX):

You can download a .pdf copy here.

For more from East Coast, be sure to check out their previous market commentary on the deflation-reflation continuum. Stay tuned as later today we'll also be posting up their most recent market commentary. In the mean time, you can head to some of the recent hedge fund letters we've posted as well for investment insight.

Tuesday, July 20, 2010

Perry Capital Exits Citigroup (C): Second Quarter Letter

Perry Capital is out with their second quarter letter and in it we see some intriguing portfolio news. Perry Partners International exited their entire equity position in Citigroup (C) in the second quarter. While they still think it is an "interesting leveraged play on worldwide economic recovery", Perry feels they had to take the position off due to price appreciation and renewed concerns regarding financial reform, among other things. This news becomes all the more interesting when you consider that Dan Loeb's hedge fund Third Point sold out of Citigroup in the first quarter. At the same time, Bill Ackman's hedge fund Pershing Square started a new stake in Citi. Such a divergence of prominent minds is what makes a market.

Perry ended the second quarter up 1.87% and is up 9.08% net year to date versus a -11.4% performance for the S&P 500. Some of their largest winning positions on the quarter included short European exposure, as well as investments in Chrysler and Barneys. In the second quarter, Perry also reduced their structured credit investment as "prices reached levels where forward yields were too low relative to risk to warrant maintaining these positions." They ratcheted their exposure down to only 3% of the portfolio from a peak of 14%.

One other portfolio maneuver worth highlighting is the fact that Perry Partners reduced risk in the portfolio as they are very concerned about the European banking system. The hedge fund ended the second quarter with 36% cash and cash equivalents. They will wait to deploy this when attractive opportunities arise in special situations in equity and credit.

In terms of portfolio exposure levels, we see that they are long equities to the tune of 23.94% and short equities by -15.39%, leaving them only 8.55% net long equities. This reaffirms what we've already seen from various data: hedge funds have below average net long equity positions. Perry's largest long exposure by far comes in corporate credit.

Perry also reveals that the majority of their hedges are "long volatility" positions, stakes that were obviously very beneficial to them during the market declines in May and June. While their hedge in Japan has not worked for them recently, they still feel the payoff profile is compelling.

Their letter ends by highlighting the extreme correlation in the markets. They note that such conditions are very difficult for typical hedge funds and they are placing an emphasis on nimbleness and portfolio positioning to guide them through. This echoes the same sentiment that market strategist Jeff Saut recently voiced when he said that risk adjusted stock selection was the key to navigating this correlated market.

Embedded below is Perry Partners International letter from the second quarter:

You can download a .PDF copy here.

We'll be posting up intriguing manager commentary as the Q2 letters continue to roll in, so be sure to stay up to date with our hedge fund portfolio tracking series.

Monday, July 19, 2010

Soros Fund Management Reveals Comverse Technology (CMVT) Stake

George Soros' investment firm Soros Fund Management this afternoon filed a 13G with the SEC disclosing a position in Comverse Technology (CMVT). Due to portfolio activity on July 7th, 2010, Soros now shows a 5.14% ownership stake in the company with 10,381,566 shares.

While they did not previously show a position in this name back when we examined Soros Fund Management's portfolio, this actually might not be a new position for them. Shares of Comverse are traded on the pink sheets and those securities typically aren't required to be disclosed in quarterly portfolio updates. All we know is that the hedge fund recently crossed the 5% ownership stake threshold that requires investment firms to file a 13G with the SEC. The fact is: Soros has been adding to this position. The only question that remains is whether it's a brand new position or a smaller previously existing one.

George Soros is only slightly involved with the hedge fund these days as his son Robert runs the flagship Quantum Endowment. For 2009, Soros' fund was up 28% as detailed in our hedge fund performances post. For thoughts from George Soros, check out his most recent book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means. And for those of you looking for a primer on finance, Soros has penned one of those as well: The Alchemy of Finance.

Taken from Google Finance, Comverse Technology is "a provider of software and systems enabling network-based multimedia enhanced communication and billing services. The Company’s Total Communication portfolio includes value-added messaging, personalized data and content-based services, prepaid, postpaid and converged billing and Internet protocol (IP) communications".

You can find the rest of his investments via George Soros' portfolio.

James Pallotta's Raptor Capital Discloses Position in Primus Telecommunications (PMUG)

James Pallotta's hedge fund firm Raptor Capital Management just filed a 13G with the SEC in regards to shares of Primus Telecommunications Group (PMUG). Per the filing, Raptor has disclosed a 8.08% ownership stake in Primus with 787,600 shares due to portfolio activity on July 7th, 2010. Since this is an over the counter (OTC) traded security, we can't be sure if this is a brand new position for Raptor because they aren't required to disclose these positions in quarterly 13F filings. In their prior portfolio disclosure, Pallotta's hedge fund did not show a stake in PMUG. There is a chance this could be a brand new position for his firm, but there's no way to know for sure without Raptor directly confirming.

This stake becomes even more puzzling when you consider that Pallotta wound down Raptor back in June 2009. Even though he folded the firm to take time off to reformulate his investment strategy, his firm continued to report positions to the SEC (although the assets under management reported decreased significantly). This latest filing seems to imply Raptor has come back to life or is at least somewhat still active.

Pallotta originally founded Raptor as a spin-off from hedge fund Tudor Investment Corp where he previously managed the equities portfolio there. While at Tudor, Pallotta's Raptor investment vehicle saw 14% annualized returns since 1993. We'll continue to monitor the SEC filings to see if further signs of life at Raptor arise.

Taken from Google Finance, Primus Telecommunications Group is "an integrated facilities-based communications services provider offering a portfolio of international and domestic voice, wireless, Internet, voice over Internet protocol (VoIP), data and data center services to customers located primarily in the United States Australia, Canada, Brazil, United Kingdom and western Europe."

For more on Pallotta and his hedge fund, head to our previous coverage of Raptor Capital.

Hedge Fund Bridger Management Boosts XenoPort (XNPT) Position

Roberto Mignone's hedge fund Bridger Management filed a 13G with the SEC after market close today regarding shares of XenoPort (XNPT). Due to portfolio activity on July 7th, Bridger has disclosed a 6.6% ownership stake in XNPT with 2,000,000 shares. This marks a 42.8% increase in their position size as they previously owned 1,400,000 shares back on March 31st, 2010.

In past coverage, we've seen a divergence of opinion regarding XenoPort amongst hedge funds. Back in May of this year, Steve Cohen's hedge fund SAC Capital showed a XNPT stake while Lee Ainslie's Maverick Capital sold out of the name back in the first quarter. Shares of XenoPort have recently sold off hard from $9 per share down to now around $6.

Prior to founding Bridger Management, Mignone co-founded Blue Ridge Capital with John Griffin. Before that, he worked at Julian Robertson's Tiger Management and Mignone received both his undergraduate degree and MBA from Harvard. Other recent portfolio maneuvering we've seen from Bridger includes adding to their iStar Financial stake. Mignone also in the past has detailed his investment thoughts for 2010 at a hedge fund panel.

Taken from Google Finance, Xenoport is "a biopharmaceutical company focused on developing and commercializing a portfolio of internally discovered product candidates, which utilizes the body’s natural nutrient transport mechanisms to improve the therapeutic benefits of existing drugs".

For more on Roberto Mignone's hedge fund, head to other recent portfolio activity from Bridger.

Larry Robbins' Glenview Capital Aggressively Adds PHH

Larry Robbins' hedge fund firm Glenview Capital just filed a 13G with the SEC regarding shares of PHH Corp (PHH). Due to portfolio activity on July 8th, 2010, Glenview has disclosed a 5.23% ownership stake in the company with 2,898,578 shares. This is an increase in their stake as they owned 1,012,464 shares back on March 31st, 2010. Glenview has boosted its position by 186%, adding 1,886,114 more shares. In terms of other hedge funds invested in PHH, we've noted for a while that Dan Loeb's Third Point holds a position as well.

For other investment ideas from this hedge fund, Larry Robbins recently highlighted some plays at the Ira Sohn Conference. Additionally, we've previously highlighted Robbins' thoughts on the case for global equities in 2010 at a hedge fund panel.

Taken from Google Finance, PHH Corporation "conducts its business through three operating segments: Mortgage Production, Mortgage Servicing and Fleet Management Services. The Company's Mortgage Production segment originates, purchases and sells mortgage loans through PHH Mortgage Corporation and its subsidiaries (PHH Mortgage). Its Mortgage Servicing segment services mortgage loans originated by PHH Mortgage and PHH Home Loans, purchases MSRs and acts as a subservicer for certain clients that own the underlying mortgage servicing rights (MSRs). The Company’s Fleet Management Services segment provides commercial fleet management services to corporate clients and government agencies throughout the United States and Canada through its wholly owned subsidiary, PHH Vehicle Management Services Group LLC."

For more from hedge fund Glenview, head to Robbins' other stock picks.

Mark Cuban ~ Quote of the Week

Continuing the Market Folly quote of the week, we give you something recent from Mark Cuban, owner of the NBA's Dallas Mavericks, entrepreneur, and active individual investor. Our previous quotes have included those from Warren Buffett as well as wisdom from Seth Klarman. Here's Cuban's response when asked about the best investing advice he could give:

"Unless you think you've done more research and have better insight on a stock than a multibillion-dollar hedge fund, why are you trading? Know why others are buying when you're selling and vice versa ... When I started trading, I tended to become attached to stocks rather than doing the work to ensure I had enough information to make a good decision."

~ Mark Cuban

Our past coverage of Cuban includes his stake in Lions Gate Entertainment, which he has since tendered to Carl Icahn.

What We're Reading ~ 7/19/10

Diary of a Very Bad Year: Confessions of an Anonymous Hedge Fund Manager [Book]

An excerpt from the above book [Newsweek]

Are we entering a new era of stockpicking? [FT Alphaville]

An undervalued stock at 52-week highs [Street Capitalist]

Stamp prices on the rise: postal arbitrage? [ValueHuntr ~ remember Market Folly readers receive a 15% discount to their Value Edge newsletter]

On the topic of business competition [Farnam Street]

Why do investors buy Cheerios on sale, but not stocks? [ValuePlays]

Wilbur Ross on his distressed bank strategy [Variant Perceptions]

Three new picks from the ultimate stock pickers [Morningstar]

Eric Sprott steps down as CEO of firm to focus on running funds [The Globe and Mail]

On investing in John Malone and Starz Entertainment [Street Capitalist]

New sports betting hedge fund [BusinessWeek]

Small investors flee stocks [WSJ]

Doug Kass on the similarities between poker and investing/trading [Business Insider]