What We're Reading ~ Analytical Links 10/2/13

Why most investors/traders fail [Reformed Broker]

Red flags flying over Boulder Brands [Herb Greenberg]

The outlook for healthcare stocks [Morningstar]

Blackstone: we're in an epic credit bubble' [CNBC]

Satellite TV providers plan for survival as growth fades [BusinessWeek]

10 stealth economic trends that rule the world today [The Atlantic]

Grounded: Brazil has stalled [Economist]

Interview with Amazon's Jeff Bezos [CNBC]

Aubrey McClendon launches new gas company [CNBC]

How Mohnish Pabrai uses checklist investing [Forbes]

Why Wall Street loves houses again [The Atlantic]

Google unveils major overhaul of its search engine [USA Today]

As J.C. Penney flounders, lack of control evident [Dealbook]

Younger generations' approach to investing [NYTimes]

Leon Cooperman Optimistic About Equities, Concerned About Employment

Legendary investor Leon Cooperman of Omega Advisors recently appeared on CNBC to give his take on the markets. The hedge fund manager oversees $6 billion and founded his firm after working at Goldman Sachs for 25 years.

Omega Advisors is currently optimistic and argues that the United States is not akin to Japan and won't see a lost decade. Cooperman highlights that while the consensus view is optimistic, many people aren't invested that way. He points to outflows in the equity market and inflows to the bond market as people seek stability after a tumultuous ride through the financial crisis.

Omega Advisors is currently 80% net long. This is much more long-oriented than the average hedge fund exposure levels. Cooperman is now the second subsequent major hedge fund manager to come out and say that he's optimistic on the markets. Appaloosa Management's David Tepper is also optimistic.


Cooperman Sees New Economic Expansion

Cooperman says that, "We're eighteen months into a new economic expansion. The average economic expansion has lasted five years. There's still plenty of runway." Now while he is optimistic regarding the future, he obviously acknowledges that things don't go straight up and he could see a potential market correction in February. However, after that, he is optimistic over the long haul provided we see improvement in unemployment numbers.

Hedge Fund Manager Prefers Equities Over Bonds

Cooperman says that, "stocks, at worst, are the best house in a bad neighborhood and if by some miracle this whole game works and we deal with fiscal issues long-term and stop kicking the can down the road, then I think stocks are the best house in a good neighborhood."

Below is the video of Cooperman's thoughts on equities and email readers will need to come to the site to view it:




Cooperman Likes Energy and Financials

Cooperman rattled off a few energy names he owns including Denbury Resources (DNR), Williams Companies (WMB), and McMoRan Exploration (MMR). Just last week we highlighted that Barry Rosenstein's hedge fund JANA Partners bought WMB as well.

In the financial sector, he likes Sallie Mae (SLM), JP Morgan (JPM), and singles out E*Trade Financial (ETFC) as a potential takeover target. The hedge fund manager also likes Teva Pharmaceutical (TEVA) which has a 20% return on equity and is a growth business trading at 11x earnings. Lastly, he mentions that he's long General Motors (GM) and Ford (F) too, as there's a lot of positive operating leverage there.

Embedded below is the video of Cooperman's thoughts on specific sectors:



And here is the final video with Cooperman's expanded comments:




Omega Buys Energy XXI Shares

Additionally, Omega Advisors just filed a disclosure of recent activity in UK markets regarding their purchase of shares in Energy XXI (LON: EXXS). Per the notification, Omega Advisors has disclosed a 5.9% ownership stake in Energy XXI with 4,062,380 shares. This is due to portfolio activity as of December 31st, 2010.

While Cooperman has purchased the EXXS shares traded in the UK, shares of Energy XXI are also traded on the Nasdaq under ticker symbol EXXI as well. Per Google Finance, Energy XXI "is an independent oil and natural gas exploration and production company with operations focused in the United States Gulf Coast and the Gulf of Mexico."

To view Cooperman's latest investments, subscribe to our Hedge Fund Wisdom newsletter as we'll reveal his portfolio in our new issue that comes out soon.

John Burbank's Passport Capital Likes Natural Resources (Portfolio & Investor Letter)

John Burbank's hedge fund firm Passport Capital is out with their May performance update and first quarter investor letter. Per the documents, we see that Passport now manages $3 billion and their Global Strategy Fund was up 0.6% for May in a month where the market indices tumbled 8%. Overall, they fared much better than other hedge funds who were down big. Year to date for 2010, Passport is up 5.1%. Since inception, Burbank's fund has returned an impressive 23.6% annualized. Those returns, however, do come with some wild volatility. Passport Global was up 219.7% in 2007 and down 50.9% in 2008. Still though, if you can stomach the ride, the cumulative body of work is hard to argue with. Note that John Burbank will be presenting investment ideas at the upcoming Value Investing Congress and we've secured over a 40% discount for Market Folly readers here.

Turning to Passport's most recent exposure levels, we see they're overall 93% long and -44% short. This gives them 49% net long exposure and it's certainly much higher than what we've seen from other hedge funds. The vast majority of funds have had very low net long exposure. This is even more surprising when you consider that Passport had high exposure yet still managed to generate a positive return in a month where the markets were down severely. Burbank did note that this increase in exposure is not a shift in their market outlook, but rather due to appreciation of their basic materials positions.

Here are John Burbank's top 10 public longs:

1. Riversdale Mining (AU:RIV)
2. Apple Computer (AAPL)
3. Financial Technologies (IS: FTECH)
4. McKesson (MCK)
5. Teva Pharmaceutical (TEVA)
6. Labrador Iron Mines (CN:LIM)
7. CF Industries (CF)
8. Pantaloon (IS:PF)
9. TIG Holding Ltd (BZ:TARP)
10. Jordan Phosphate Mines (JR:JOPH)

As you can see, they have a lot of international exposure and also favor natural resource plays. Of their equity holdings though, two look very familiar: Teva Pharmaceutical and Apple. These two are some of the most widely held stocks amongst hedge funds. Embedded below is the May performance attribution sheet from Passport Capital:



You can download a .pdf copy here.

Additionally, in Burbank's first quarter letter to investors, he hones in on Passport's current strategy: betting on natural resources that China is structurally short. He touches on their thesis for Riversdale, their largest position and one they have owned for three years (traded in Australia). Burbank cites rising merger activity in the sector and rising coking coal prices. Passport owns around 14% of the company.

Turning to their position in Teva Pharmaceutical, Burbank cites increased opportunity in the health care sector due to reform. Passport believes the winners due to these changes will be pharmaceutical players, and diagnostics sectors. They also like pharmaceutical benefit managers (PBMs) and pharmaceutical distributors, thus reflected in their McKesson position. We've seen many other hedge funds bullish on the PBM sector as Andreas Halvorsen's Viking Global bets on Express Scripts (ESRX) and Lee Ainslie's Maverick Capital had been bullish on CVS Caremark (CVS).

Turning back to non-equity positions, keep in mind that Burbank's Passport owns physical gold as well. Embedded below is Passport Capital's first quarter letter to investors and we recommend reading it in its entirety for Burbank's in-depth explanation of some of their natural resource related bets:



You can download a .pdf copy here.

That about wraps up this comprehensive update on one of the more successful macro funds over the last decade. Keep in mind you can receive investment ideas directly from John Burbank and many other prominent hedge fund managers at the upcoming Value Investing Congress (receive a discount here).

Hedge Fund Shumway Capital Partners Adds Large New Stakes in Kraft Foods, Comcast (13F Filing Q1 2010)

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund filings.)

Next up is Chris Shumway's hedge fund Shumway Capital Partners. Prior to founding his firm, Shumway was previously one of Julian Robertson's right-hand men at legendary hedge fund Tiger Management. As such, he joins the other successful Tiger Cubs and is included in the Tiger Cub portfolio created with Alphaclone for hedge fund replication. Shumway Capital Partners focuses on intensive fundamental research to drive their long/short equity strategy. Back in 2009, Shumway was listed in Barron's top 100 hedge funds for 2009 with a rolling 3-year annualized return of 28%. However, 2010 has proven difficult for the firm as their Sakkonet Fund was down 10% in May after they had gained 4.3% through April. Shumway received his MBA from Harvard Business School and his undergraduate degree from the University of Virginia.

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


Brand New Positions
Kraft Foods (KFT)
Comcast (CMCSA)
Air Products & Chemicals (APD)
Bank of America (BAC)
General Dynamics (GD)
Bard (BCR)
Staples (SPLS)
Liberty Global (LBTYA)
CME Group (CME)
Comcast (CMCSK)
TD Ameritrade (AMTD)
Illumina (ILMN)
Lowe's (LOW)
Discovery Communications (DISCA)
Cablevision (CVC)
Hartford Financial (HIG)
Sigma Aldrich (SIAL)
Waters (WAT)
Annaly Capital Management (NLY)
Credit Suisse (CS)
Liberty Global (LBTYK)
Illinois Toolworks (ITW)
SBA Communications (SBAC) Notes


Increased Positions
Novo (NVO): Increased position size by 413.8%
Goldman Sachs (GS): Increased by 275.4%
Baidu (BIDU): Increased by 85.4%
Apple (AAPL): Increased by 62.4%
Cisco Systems (CSCO): Increased by 57.2%
Disney (DIS): Increased by 47.6%
PNC Financial (PNC): Increased by 32.2%
Ingersoll-Rand (IR): Increased by 28.5%
Pfizer (PFE): Increased by 21.1%


Reduced Positions
Wells Fargo (WFC): Reduced position by 74.7%
Omnicom Group (OMC): Reduced by 70.8%
Juniper Networks (JNPR): Reduced by 62.4%
Pepsico (PEP): Reduced by 61.4%
Las Vegas Sands (LVS): Reduced by 60.2%
Urban Outfitters (URBN): Reduced by 57.9%
St Jude Medical (STJ): Reduced by 54.8%
Ctrip (CTRP): Reduced by 53.7%
JPMorgan Chase (JPM): Reduced by 45.8%
Gap (GPS): Reduced by 41.9%
Mastercard (MA): Reduced by 36.4%
Johnson & Johnson (JNJ): Reduced by 24.7%
Quest Diagnostics (DGX): Reduced by 22.9%
Visa (V): Reduced by 22.6%
Salesforce.com (CRM): Reduced by 15.4%


Positions They Sold Out of Completely
Qualcomm (QCOM)
Qualcomm (QCOM) Calls
Select Sector Financials (XLF) Calls
EMC (EMC)
Freeport McMoran (FCX)
Brocade Communications (BRCD)
Colgate Palmolive (CL)
CVS Caremark (CVS)
Radioshack (RSH)
Memc Electronics (WFR)
Fifth Third (FITB)
Allstate (ALL)
AOL (AOL)
Monsanto (MON)
Research in Motion (RIMM)
NII Holdings (NIHD) Notes
Kinross Gold (KGC) Notes
BioMarin Pharmaceutical (BMRN) Notes


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

1. Apple (AAPL): 9.5%
2. Disney (DIS): 5.8%
3. Cisco Systems (CSCO): 5.3%
4. Kraft Foods (KFT): 5.3%
5. Teva Pharmaceuticals (TEVA): 5.3%
6. Pfizer (PFE): 4.6%
7. Equinix (EQIX): 4.5%
8. Goldman Sachs (GS): 3.9%
9. Time Warner (TWX): 3.7%
10. Johnson & Johnson (JNJ): 3.5%
11. Comcast (CMCSA): 2.7%
12. Visa (V): 2.5%
13. Baidu (BIDU): 2.4%
14. Mastercard (MA): 2.2%
15. JPMorgan Chase (JPM): 2.1%

Shumway's biggest portfolio change was their new position in Kraft Foods (KFT) as it is now their fourth largest US equity long. Numerous other hedgies like KFT these days, including Bill Ackman who previously detailed his investment thesis on Kraft. Additionally, Shumway started quite a sizable stake in Comcast (via CMCSA and CMCSK). They were also out adding to some of their mainstay holdings such as Apple, Cisco Systems, Disney, and Pfizer.

We also wanted to point out that their Equinix (EQIX) position listed above is only their equity stake. Shumway also holds various notes and their aggregate exposure to EQIX actually makes it one of their largest positions (slightly smaller than the size of their CSCO stake). And if you hadn't already noticed, many stocks in their portfolio are those on Goldman Sachs' VIP list of stocks most important to hedge funds. Maybe that helps explain their poor performance in the month of May.

On the selling side of things, Shumway Capital Partners was also somewhat active. In the fourth quarter of 2009, we saw that Shumway was betting big on Wells Fargo (WFC). Well, that certainly changed quickly as they dumped almost 75% of their position in the first quarter of 2010. However, in the financial sector they added to their stakes in Goldman Sachs and PNC Financial. Additionally, they sold completely out of hedge fund favorite stocks Qualcomm, EMC, Research in Motion and Freeport McMoran. It was also interesting to see Shumway sell out of CVS Caremark as we've seen some other hedge fund managers bullish on CVS shares as of late.

Assets reported on Shumway's 13F filing were $7.9 billion this quarter. Data from the SEC is aggregated and sorted automatically by Alphaclone, our source for hedge fund tracking, replicating, and performance backtesting (Market Folly readers can receive a special free 14 day trial). Remember that these filings are not representative of the hedge fund's entire base of AUM.

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

Shumway Capital Partners Bets Big On Wells Fargo (WFC): 13F Filing

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund 13F filings.)

Next up is Chris Shumway's hedge fund Shumway Capital Partners. Shumway uses intensive fundamental research to create long/short equity portfolios from the bottom-up. Chris Shumway was previously Julian Robertson's right-hand man at Tiger Management before launching his own fund. He received his B.S. from the University of Virginia and his MBA from Harvard Business School.

Shumway's returns are outstanding as they have a rolling 3-year annualized return of 28% according to Barron's top 100 hedge funds for 2009. We've long been an admirer of Shumway's intense due diligence. They are included in our Market Folly portfolio where we have combined various hedge fund portfolios to generate a unique replication strategy that has backtested over 25% annualized returns with the help of Alphaclone.

The positions listed below were Shumway's long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. All holdings are common stock unless otherwise denoted.


Brand New Positions
Bank of America preferreds (BAC-S)
Johnson & Johnson (JNJ)
Pfizer (PFE)
Freeport McMoran (FCX)
Brocade Communications (BRCD)
Gap (GPS)
Salesforce (CRM)
Amazon (AMZN)
CVS Caremark (CVS)
Radioshack (RHS)
MEMC Electronics (WFR)
Fifth Third Bancorp (FITB)
Dollar General (DG)
AOL (AOL)
Research in Motion (RIMM)
Biomarin Pharma (Notes 1.875%)
Kinross Gold (Notes 1.750%)


Increased Positions
Wells Fargo (WFC): Increased by 305%
Time Warner (TWX): Increased by 180%
Quest Diagnostics (DGX): Increased by 179%
JPMorgan Chase (JPM): Increased by 78.5%
Ingersoll Rand (IR): Increased by 69%
Pepsico (PEP): Increased by 54%
Qualcomm (QCOM): Increased by 50.5%
Universal Health (UHS): Increased by 48.7%
Las Vegas Sands (LVS): Increased by 43%
Laboratory Corp (LH): Increased by 40%
Walt Disney (DIS): Increased by 33.5%
Apple (AAPL): Increased by 32%


Reduced Positions
Monsanto (MON): Reduced by 77.8%
Allstate (ALL): Reduced by 75%
Baidu (BIDU): Reduced by 57.5%
Union Pacific (UNP): Reduced by 49%
Community Health (CYH): Reduced by 39.4%
Goldman Sachs (GS): Reduced by 39%
Colgate Palmolive (CL): Reduced by 37.6%
Urban Outfitters (URBN): Reduced by 34.2%
Visa (V): Reduced by 33.6%
Cisco Systems (CSCO): Reduced by 30%
Yum Brands (YUM): Reduced by 27.3%
Mastercard (MA): Reduced by 25.2%
Juniper Networks (JNPR): Reduced by 24.8%
EMC (EMC): Reduced by 21%


Removed Positions (Sold out completely):
Bank of America (BAC)
Procter & Gamble (PG)
Walgreen (WAG)
Zimmer Holdings (ZMH)
Google (GOOG)
Cemex (CX)
Bard (BCR)
Waters (WAT)
Charles Schwab (SCHW)
Weatherford International (WFT)
Nordstrom (JWN)
BB&T (BBT)
Wyeth (inactive ~ merger completed)
American Tower (AMT)
SBA Communications (SBAC)
CSX (CSX)
Williams (WMB)
Federal Realty (FRT)
XL Cap (XL)
Unilever (UL)
Lazard (LAZ)
SLM (SLM)
Genworth Financial (GNW)
Washington Fed (WFSL)
Melco Crown (MPEL)


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

1. Bank of America preferreds (BAC-S): 5.97%
2. Apple (AAPL): 5.4%
3. Wells Fargo (WFC): 5.3%
4. Johnson & Johnson (JNJ): 4.7%
5. Teva Pharmaceutical (TEVA): 4.7%
6. Equinix (EQIX): 4.6%
7. Pepsico (PEP): 4.3%
8. Pfizer (PFE): 4.1%
9. Walt Disney (DIS): 3.8%
10. Time Warner (TWX): 3.8%
11. Qualcomm (QCOM): 3.8%
12. JPMorgan Chase (JPM): 3.7%
13. Mastercard (MA): 3.7%
    
14. EMC (EMC): 3.2%
15. Freeport McMoran (FCX): 3.2%

Of Shumway's top holdings, four of them were brand new stakes: Bank of America preferreds, Johnson & Johnson, Pfizer, and Freeport McMoran. Take note that they completely dumped their BAC common stock and bought the Bank of America preferred on the offering, a trend we've seen many hedge funds take advantage of.

Looking over their portfolio though, it has a multinational blue-chip feel to it. What's interesting is that in the quarter prior they had purchased blue-chip stocks as well. This time around though, they were largely selling off those blue-chips and buying new blue-chip names. Shares of JNJ, PEP, and PFE find a place in Shumway's portfolio and are the definition of these 'safer' plays that are seemingly undervalued on a relative basis. We've seen this mantra out of numerous other hedge funds as they note 'junk' high beta stocks rallied the most during 2009, leaving solid blue-chip companies behind. As such, many hedgies have rotated into these multinational stocks for 2010, a year in which many think we'll see tepid growth.

It's also interesting to see hedge funds return to old favorite Freeport McMoran. Hedgies loved this play pre-crisis but dumped shares in a hurry once the global economy started heading south. It looks like some funds are starting to dip their toe back in the water with this name. Turning to financials, we also saw Shumway massively boost their holdings in Wells Fargo (WFC), something we've started to see more and more hedge funds do as of late as well.

Shumway dumped stakes in SBA Communications and American Tower, a move we found intriguing solely because tower stocks have been some of the most popular stocks amongst Tiger Cub hedge funds. Additionally, Shumway's sale of Google made us take notice as shares of the internet giant slowly seem to have fallen out of favor with many hedgies.

Data used for this article comes from Alphaclone. Using their hedge fund replicators, you can backtest strategies and sort through all the hedge fund portfolio maneuvers with ease, we highly recommend it. Assets reported on Shumway's 13F filing were $8.6 billion this quarter compared to $7.4 billion last quarter, so quite a noticeable uptick in assets. Remember that these filings are not representative of the hedge fund's entire base of AUM.

We'll be tracking 40+ prominent funds in our fourth quarter 2009 hedge fund portfolio tracking series. We've already covered Seth Klarman's Baupost Group, Mohnish Pabrai's Investment Fund, Carl Icahn's hedge fund Icahn Partners, David Einhorn's Greenlight Capital, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, David Tepper's Appaloosa Management, Warren Buffett's portfolio, John Paulson's hedge fund Paulson & Co, Lee Ainslie's Maverick Capital, Dan Loeb's Third Point, Eddie Lampert's RBS Partners, and David Ott's Viking Global. Check back daily for our new updates.