market folly

(Note: Before reading this update, make sure you check out the preface to the series I'm doing on Hedge Fund 13F's here).

Time to continue the Hedge Fund tracking series! If you've missed them, I've already covered Jeffrey Gendell's Tontine Partners here, Bret Barakett's Tremblant Capital here, Peter Thiel's Clarium Capital here, Stephen Mandel's Lone Pine Capital here, Lee Ainslie's Maverick Capital here, and John Griffin's Blue Ridge Capital here, and Boone Pickens' BP Capital here. This week, I'm taking a slightly different approach to the hedge fund tracking series. I'm doing so because the 13F SEC filings are filed on a quarterly basis, so these materials are time sensitive and the next ones are due out in November. I stated in my series preface that you need to treat these as a lagging indicator, because that's what they are. The holdings discussed below reflect portfolio holdings as of June 30th, 2008. So, since these forms are so tedious to sort through, I've condensed the rest of the hedge funds I track to summarize their major moves and top holdings.

Additionally, the majority of the rest of the funds I follow are macro funds. And, since 13F filings only detail equity holdings, we're left with a bit of a problem. Macro funds typically employ strategies that encompass many financial markets. Be it commodities, currency, futures, foreign markets.... you name it. So, these funds are much harder to track. Since they are not required to disclose positions held in those markets, we only get to see their equity holdings. But, at the same time, I still find the information useful because many of these funds have numerous large equity positions which give you a broad sense as to what their strategies may be.

So, first up in the macro hedge fund tracking series is Moore Capital Management. This $10 billion group of hedge funds is ran by Louis Bacon, the famed trader and risk manager. He comes from the group of "offspring" of the legendary Commodities Corp. Bacon emerged as one of the great macro traders alongside the likes of Paul Tudor Jones (Tudor Investment Corp), and Bruce Kovner (Caxton Associates). And, interestingly enough, Bacon helped get his firm off the ground when Paul Tudor Jones stopped accepting capital from investors and instead turned them to Bacon's firm. Returning 31% annually since inception in 1990, Bacon can be very proud of his flagship fund, Moore Global Investments. But, it doesn't stop there. His returns have shown little correlation to the stock market and low volatility. He is the definition of a risk manager. Bacon credits his risk management skills to the futures markets, where he learned to be sensitive to market action. And, he learned such skills at an early age. While getting his MBA at Columbia, he used his student loan money to trade. And, he lost it all. Clearly, he learned a lesson he would never forget. Such a lesson stuck with him as he worked various jobs in the financial industry before eventually starting his own firm. And, in his first year managing Moore Capital Management, he returned 86%. Bacon strives to identify long running macro trends. While he has a longer-term macroeconomic view, he won't let that stop him from making money by trading around the position in the mean time. If you want to hear some insightful thoughts from Louis Bacon himself, head over to my post on Hedge Fund manager interviews. So, now that we've got a background on Bacon and Moore Capital Management, let's take a quick look at his portfolio highlights.

Keep in mind that this is merely a brief summary of Moore's top holdings. Due to the time sensitive nature of the 13F material, I wanted to get this information posted before the next set of filings come out in November.

Top 20 Holdings by % of portfolio
1. Chesapeake Energy (CHK) Common + Calls - Nearly quadrupled his stake to bring it to his firm's top holding
2. Freeport McMoran (FCX) - Only slightly increased his position
3. Petrohawk (HK) - Massively increased his stake
4. JPMorgan Chase (JPM) - Tripled his stake
5. QQQ Trust (QQQQ) - New holding this past quarter
6. Petroleo Brasileiro (PBR) - Slightly increased his stake
7. Qualcomm (QCOM) - Massively increased his position
8. Lehman Brothers (LEH) - Increased position by 600% (Market value $100 million at the time)
9. Water Resources ETF (PHO) - No change in position
10. Electronic Arts (ERTS) - Nearly doubled his position
11. Phillip Morris Internation (PM) - New position this past quarter
12. Merrill Lynch (MER) Puts - From 25,000 shares to 2,625,000 shares (Market value $83 million at the time)
13. Google (GOOG) - New position this past quarter
14. Sandridge Energy (SD) - Doubled down on his stake
15. Hewlett Packard (HPQ) - New position this past quarter
16. Max Capital Group (MXGL) - Stayed flat (added literally only 4 shares)
17. Marathon Oil (MRO) - New position this past quarter
18. Sotheby's (BID) - New position this past quarter
19. Coca Cola (KO) - Doubled down on his stake
20. Potash (POT) - Sold off a little over 20% of his position

At the time of the filing, Moore Capital Management's total equity portfolio totalled around $4.4 billion. So, I just want to re-emphasize that since they are a macro fund, they obviously have the majority of their positions in the commodity, currency, futures, or other markets. But, at the same time, they still have a sizable chunk of money in the equity markets.

In terms of major moves, it's quite clear to see that Bacon was very Bullish on natural gas, adding heavily to the likes of Chesapeake (CHK), Petrohawk (HK), and Sandridge (SD). Come the next round of 13F filings, it will be very interesting to see what Bacon did with his natural gas holdings, seeing as how the prices have fallen dramatically. Was he partly responsible for the sell-off, or did he get caught in the downswing? We won't know for sure until November, where we can see just how risk management savvy Bacon really is.

Other notable changes to his portfolio include many new positions started in technology over the past quarter, including The Q's (QQQQ), Google (GOOG), and Hewlett Packard (HPQ). Also, he added to his already existing position in Qualcomm (QCOM).

The last thing I want to point out in Moore Capital Management's portfolio is their massive addition to positions in Lehman Brothers (LEH) and Merrill Lynch (MER). And when I say massive additions, I really do mean massive. Bacon had really miniscule positions in these two names and over this past quarter ratcheted up his stakes hardcore. He increased his position in LEH by 600% and in MER by 10,000%. Assumming he still holds those positions, he is massively underwater in them. Because, after all, Lehman is facing Liquidation, as I just recently wrote about here. But, we won't know what he was trying to pull with these positions until November.

Needless to say, there are some interesting names in this portfolio. But, it will be much more interesting to see what Bacon's done with these holdings come November. We already knew hedge funds (and macro funds in particular) had a rough July, as I noted here. And, it's easy to see why, with the heavy commodity exposure many of them had. What we don't yet know is how they've rebounded (if at all). Overall though, I think Moore Capital Management has some great positions poised to benefit from longer-term running macro themes that we will see unfold in the coming years. Because, after all, Louis Bacon loves focusing on the big picture trends.


Moore Capital Management's full 13F filing listing every position can be found at the SEC.