David Stemerman's Conatus Capital Boosts Technology Exposure, Trims Basic Materials: 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 David Stemerman's hedge fund Conatus Capital. Conatus raised $2.3 billion and began trading last year after Stemerman left Stephen Mandel's Lone Pine Capital to start his own hedge fund. Like many of the hedge funds we focus on, Stemerman places emphasis on bottom-up individual stockpicking with a long-term time horizon and a long/short equity strategy. In evaluating stocks, they like to focus on the quality of the business and quality of management. And on the short side of their portfolio specifically, they like to focus on companies that are seeing increased competition from lower-cost alternatives or are being displaced by new technology. We've previously taken a look at their investment process in their latest investor letter. For 2009, Conatus finished the fourth quarter up 2.86% and the year up 19.16% as listed in our post on 2009 hedge fund performances.

The positions listed below were Conatus' 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
Visa (V)
Estee Lauder (EL)
Schlumberger (SLB)
Discovery Communications (DISCA)
Salesforce.com (CRM)
Polo Ralph Lauren (RL)
Netapp (NTAP)
VMWare (VMW)
Abercrombie & Fitch (ANF)
Credicorp (BAP)


Increased Positions
CH Robinson (CHRW): Increased by 61.6%
Teradata (TDC): Increased by 59%
Covidien (COV): Increased by 55.6%
Priceline.com (PCLN): Increased by 30%
Cognizant Technology (CTSH): Increased by 18%
Citrix (CTXS): Increased by 12%
Express Scripts (ESRX): Increased by 10%


Reduced Positions
Range Resources (RRC): Reduced by 46%
Wells Fargo (WFC): Reduced by 40.6%
BHP Billiton (BHP): Reduced by 39.4%
Walter Energy (WLT): Reduced by 28%
Freeport McMoran (FCX): Reduced by 28%
SBA Communications (SBAC): Reduced by 28%
Urban Outfitters (URBN): Reduced by 27%
Crown Castle (CCI): Reduced by 23.5%
Goldman Sachs (GS): Reduced by 15%


Removed Positions (Sold out completely):
Apollo Group (APOL)
Weatherford (WFT)
DR Horton (DHI)
Toll Brothers (TOL)
Monsanto (MON)
Baxter (BAX)
Petrohawk (HK)
Strayer Education (STRA)
Mindray Medical (MR)
Carnival (CCL)
Baidu (BIDU)
Qualcomm (QCOM)


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

1. Apple (AAPL): 6.33%
   
2. Express Scripts (ESRX): 5.52%
   
3. Medco Health (MHS): 4.85%
   
4. Google (GOOG): 4.52%
   
5. Cognizant Technology (CTSH): 4.45%
   
6. Cisco Systems (CSCO): 4.35%
   
7. Covidien (COV): 4.30%
   
8. JPMorgan Chase (JPM): 3.61%
   
9. Walter Energy (WLT): 3.48%
   
10. Amazon (AMZN): 2.98%
    
11. Visa (V): 2.95%
    
12. Estee Lauder (EL): 2.90%
    
13. Schlumberger (SLB): 2.87%
    
14. CH Robinson (CHRW): 2.86%
    
15. Itau Unibanco (ITUB): 2.85%
    

Technology definitely plays a big role in Conatus' portfolio. However, pharmacy benefit management (PBM) companies Express Scripts (ESRX) and Medco Health (MHS) are their 2nd and 3rd largest US equity long stakes and immediately drew our attention. While we've seen many other hedgies play the PBM theme via Express Scripts, CVS, and related companies, Conatus definitely has the most noteworthy exposure as their positions garner the highest placement in their portfolio.

Regarding positions they no longer own, we already knew that Stemerman's hedge fund had sold out of for-profit education plays Apollo Group and Strayer Education as they mentioned this in their investor letter. They also sold completely out of various homebuilders along with Monsanto and Weatherford. While they still own natural resource stocks, they sold shares in practically all of their basic materials plays. Over the fourth quarter, Conatus Capital started sizable new positions in Visa, Estee Lauder, and Schlumberger. Overall, we can sum up their portfolio maneuvers by reduced exposure to basic materials and increased technology exposure.

Data used for this article comes from Alphaclone, our source for backtesting strategies and sorting through all the hedge fund portfolio maneuvers with ease. Assets reported on the 13F filing were $1.8 billion this quarter compared to $1.9 billion last quarter. 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, David Ott's Viking Global, and Chris Shumway's hedge fund Shumway Capital Partners, Chase Coleman's Tiger Global, Philip Falcone's Harbinger Capital Partners, Roberto Mignone's Bridger Management, Thomas Steyer's Farallon Capital, John Burbank's Passport Capital, Brett Barakett's Tremblant Capital, George Soros' hedge fund Soros Fund Management, and Philippe Laffont's Coatue Management Charles Anderson's Fox Point Capital, Bill Ackman's Pershing Square Capital Management, Jonathan Auerbach's Hound Partners, and Lee Hobson's Highside Capital. Check back daily for our new updates.

Goldman Sachs' VIP List: Most Important Stocks For Hedge Funds

Given our focus on following hedge fund movements, we thought it would be prudent to post up Goldman Sachs' VIP list. The 'VIP' stands for 'Very Important Positions' for hedge funds that employ fundamental strategies rather than technical or trading. In essence, these are the 50 stocks that most frequently appear among the top ten holdings of hedge funds. In our hedge fund portfolio tracking series you may have noticed various stocks popping up over and over again in their top 10 holdings. This is simply an aggregation of a larger set of data and stems from our previous coverage of the top ten hedgie holdings.

This basket of stocks returned 40% in 2009 versus 27% for the S&P 500. Goldman also notes that this list has, "outperformed the S&P 500 by 81 bp on a quarterly basis since 2001, with a Sharpe Ratio of 0.29." Quarterly turnover on this list is typically around 15 positions out of the 50. Those of you with Bloomberg Terminal access can look it up via GSTHHVIP.

Goldman has aggregated data from 487 funds based on the recent slew of 13F filings so these were the most popular stocks owned as of December 31st, 2009. Again, they focus on fundamentally focused hedge funds but have taken a much broader view of hedge fund land than we typically have. We instead focus on a select list of funds to track that are ideal due to their strategy and portfolio concentration. What's most interesting about the data Goldman has assembled is that many of the positions have actually been down year-to-date for 2010. We found that intriguing given that these are essentially 'groupthink' or consensus picks.

Below you will find Goldman Sachs' VIP List with the name of the stock followed by the number of hedge funds that own that stock in their top ten holdings.

1. Apple (AAPL): 67 hedge funds hold it as a top ten holding
   
2. Pfizer (PFE): 45
3. Bank of America (BAC): 37
4. Google (GOOG): 37
5. JPMorgan Chase (JPM): 36
6. Microsoft (MSFT): 36
7. Mastercard (MA): 29
8. DirecTV (DTV): 27
9. Wells Fargo (WFC): 27
10. CVS Caremark (CVS): 24
11. Citigroup (C): 23
12. Hewlett Packard (HPQ): 23
13. Monsanto (MON): 23
14. Visa (V): 23
15. Cisco Systems (CSCO): 21
16. Walmart (WMT): 21
17. Oracle (ORCL): 18
18. Qualcomm (QCOM): 18
19. Exxon Mobil (XOM): 18
20. Ebay (EBAY): 17
21. Wellpoint (WLP): 17
22. Intel (INTC): 16
23. Mead Johnson Nutrition (MJN): 16
24. Merck (MRK): 16
25. Johnson & Johnson (JNJ): 15
26. Liberty Media (LSTZA): 15
27. Amazon (AMZN): 14
28. Apache (APA): 14
29. EMC (EMC): 14
30. Express Scripts (ESRX): 14
31. Ford Motor (F): 14
32. IBM (IBM): 14
33. Lear (LEA): 14
34. Teva Pharmaceutical (TEVA): 14
35. Yahoo (YHOO): 14
36. Crown Castle (CCI): 13
37. McDonald's (MCD): 13
38. Transocean (RIG): 13
39. Barrick Gold (ABX): 12
40. SBA Communications (SBAC): 12
41. US Bancorp (USB): 12
42. Anadarko Petroleum (APC): 11
43. Berkshire Hathaway (BRK.B): 11
44. Philip Morris International (PM): 11
45. Transdigm Group (TDG): 11
46. Target (TGT): 11
47. Thermo Fisher Scientific (TMO): 11
48. American Tower (AMT): 10
49. Comcast (CMCSA): 10
50. Freeport McMoran (FCX): 10
    

Of the stocks mentioned, there are a handful that are brand new additions to Goldman's VIP list. This means that enough hedge funds have brought their stakes in the company up to a top 10 position in their respective portfolios. Positions that hedgies added largely to in the fourth quarter include: Wells Fargo (WFC), Mead Johnson (MJN), Merck (MRK), Liberty Media (LSTZA), Amazon (AMZN), Apache (APA), IBM (IBM), Lear (LEA), Crown Castle (CCI), SBA Communications (SBAC), US Bancorp (USB), Anadarko Petroleum (APC), Target (TGT), American Tower (AMT), and Freeport McMoran (FCX).

Readers will take note that all three major tower stocks are included as we've been harping on this for some time now. We've highlighted how hedgies had increased exposure to AMT, CCI, and SBAC as demand for wireless data service continues to grow. Overall, an insightful list and now you can easily follow the smart money with these consensus plays. For more research from Goldman Sachs, head to our other post which covers an extensive look at the top hedge fund holdings. And don't forget that you can also get specific hedgie portfolio updates by heading to our tracking series where we specifically focus on bottom-up stockpickers.

Seth Klarman's Investment Lessons From the Financial Crisis

Hat tip to MyInvestingNotebook for posting this up from ValueInvestingInsight. The following excerpt comes from Seth Klarman's annual letter to Baupost Group investors. Needless to say, it is a must read. Without further ado, here are Seth Klarman's Lessons of 2008:


In this excerpt from his annual letter, investing great Seth Klarman describes 20 lessons from the financial crisis which, he says, “were either never learned or else were immediately forgotten by most market participants.”

One might have expected that the near-death experience of most investors in 2008 would generate valuable lessons for the future. We all know about the “depression mentality” of our parents and grandparents who lived through the Great Depression. Memories of tough times colored their behavior for more than a generation, leading to limited risk taking and a sustainable base for healthy growth. Yet one year after the 2008 collapse, investors have returned to shockingly speculative behavior. One state investment board recently adopted a plan to leverage its portfolio – specifically its government and high-grade bond holdings – in an amount that could grow to 20% of its assets over the next three years. No one who was paying attention in 2008 would possibly think this is a good idea.

Below, we highlight the lessons that we believe could and should have been learned from the turmoil of 2008. Some of them are unique to the 2008 melt- down; others, which could have been drawn from general market observation over the past several decades, were certainly reinforced last year. Shockingly, virtually all of these lessons were either never learned or else were immediately forgotten by most market participants.

Twenty Investment Lessons of 2008

1. Things that have never happened before are bound to occur with some regularity. You must always be prepared for the unexpected, including sudden, sharp downward swings in markets and the economy. Whatever adverse scenario you can contemplate, reality can be far worse.
2. When excesses such as lax lending standards become widespread and persist for some time, people are lulled into a false sense of security, creating an even more dangerous situation. In some cases, excesses migrate beyond regional or national borders, raising the ante for investors and governments. These excesses will eventually end, triggering a crisis at least in proportion to the degree of the excesses. Correlations between asset classes may be surprisingly high when leverage rapidly unwinds.
3. Nowhere does it say that investors should strive to make every last dollar of potential profit; consideration of risk must never take a backseat to return. Conservative positioning entering a crisis is crucial: it enables one to maintain long-term oriented, clear thinking, and to focus on new opportunities while others are distracted or even forced to sell. Portfolio hedges must be in place before a crisis hits. One cannot reliably or affordably increase or replace hedges that are rolling off during a financial crisis.
4. Risk is not inherent in an investment; it is always relative to the price paid. Uncertainty is not the same as risk. Indeed, when great uncertainty – such as in the fall of 2008 – drives securities prices to especially low levels, they often become less risky investments.
5. Do not trust financial market risk models. Reality is always too complex to be accurately modeled. Attention to risk must be a 24/7/365 obsession, with people – not computers – assessing and reassessing the risk environment in real time. Despite the predilection of some analysts to model the financial markets using sophisticated mathematics, the markets are governed by behavioral science, not physical science.
6. Do not accept principal risk while investing short-term cash: the greedy effort to earn a few extra basis points of yield inevitably leads to the incurrence of greater risk, which increases the likelihood of losses and severe illiquidity at precisely the moment when cash is needed to cover expenses, to meet commitments, or to make compelling long-term investments.
7. The latest trade of a security creates a dangerous illusion that its market price approximates its true value. This mirage is especially dangerous during periods of market exuberance. The concept of "private market value" as an anchor to the proper valuation of a business can also be greatly skewed during ebullient times and should always be considered with a healthy degree of skepticism.
8. A broad and flexible investment approach is essential during a crisis. Opportunities can be vast, ephemeral, and dispersed through various sectors and markets. Rigid silos can be an enormous disadvantage at such times.
9. You must buy on the way down. There is far more volume on the way down than on the way back up, and far less competition among buyers. It is almost always better to be too early than too late, but you must be prepared for price markdowns on what you buy.
10. Financial innovation can be highly dangerous, though almost no one will tell you this. New financial products are typically created for sunny days and are almost never stress-tested for stormy weather. Securitization is an area that almost perfectly fits this description; markets for securitized assets such as subprime mortgages completely collapsed in 2008 and have not fully recovered. Ironically, the government is eager to restore the securitization markets back to their pre-collapse stature.
11. Ratings agencies are highly conflicted, unimaginative dupes. They are blissfully unaware of adverse selection and moral hazard. Investors should never trust them.
12. Be sure that you are well compensated for illiquidity – especially illiquidity without control – because it can create particularly high opportunity costs.
13. At equal returns, public investments are generally superior to private investments not only because they are more liquid but also because amidst distress, public markets are more likely than private ones to offer attractive opportunities to average down.
14. Beware leverage in all its forms. Borrowers – individual, corporate, or government – should always match fund their liabilities against the duration of their assets. Borrowers must always remember that capital markets can be extremely fickle, and that it is never safe to assume a maturing loan can be rolled over. Even if you are unleveraged, the leverage employed by others can drive dramatic price and valuation swings; sudden unavailability of leverage in the economy may trigger an economic downturn.
15. Many LBOs are man-made disasters. When the price paid is excessive, the equity portion of an LBO is really an out-of-the-money call option. Many fiduciaries placed large amounts of the capital under their stewardship into such options in 2006 and 2007.
16. Financial stocks are particularly risky. Banking, in particular, is a highly leveraged, extremely competitive, and challenging business. A major European bank recently announced the goal of achieving a 20% return on equity (ROE) within several years. Unfortunately, ROE is highly dependent on absolute yields, yield spreads, maintaining adequate loan loss reserves, and the amount of leverage used. What is the bank's management to do if it cannot readily get to 20%? Leverage up? Hold riskier assets? Ignore the risk of loss? In some ways, for a major financial institution even to have a ROE goal is to court disaster.
17. Having clients with a long-term orientation is crucial. Nothing else is as important to the success of an investment firm.
18. When a government official says a problem has been "contained," pay no attention.
19. The government – the ultimate short-term-oriented player – cannot withstand much pain in the economy or the financial markets. Bailouts and rescues are likely to occur, though not with sufficient predictability for investors to comfortably take advantage. The government will take enormous risks in such interventions, especially if the expenses can be conveniently deferred to the future. Some of the price-tag is in the form of back- stops and guarantees, whose cost is almost impossible to determine.
20. Almost no one will accept responsibility for his or her role in precipitating a crisis: not leveraged speculators, not willfully blind leaders of financial institutions, and certainly not regulators, government officials, ratings agencies or politicians.

Below, we itemize some of the quite different lessons investors seem to have learned as of late 2009 – false lessons, we believe. To not only learn but also effectively implement investment lessons requires a disciplined, often contrary, and long-term-oriented investment approach. It requires a resolute focus on risk aversion rather than maximizing immediate returns, as well as an understanding of history, a sense of financial market cycles, and, at times, extraordinary patience.

False Lessons

1. There are no long-term lessons – ever.
2. Bad things happen, but really bad things do not. Do buy the dips, especially the lowest quality securities when they come under pressure, because declines will quickly be reversed.
3. There is no amount of bad news that the markets cannot see past.
4. If you’ve just stared into the abyss, quickly forget it: the lessons of history can only hold you back.
5. Excess capacity in people, machines, or property will be quickly absorbed.
6. Markets need not be in sync with one another. Simultaneously, the bond market can be priced for sustained tough times, the equity market for a strong recovery, and gold for high inflation. Such an apparent disconnect is indefinitely sustainable.
7. In a crisis, stocks of financial companies are great investments, because the tide is bound to turn. Massive losses on bad loans and soured investments are irrelevant to value; improving trends and future prospects are what matter, regardless of whether profits will have to be used to cover loan losses and equity shortfalls for years to come.
8. The government can reasonably rely on debt ratings when it forms programs to lend money to buyers of otherwise unattractive debt instruments.
9. The government can indefinitely control both short-term and long-term interest rates.
10. The government can always rescue the markets or interfere with contract law whenever it deems convenient with little or no apparent cost. (Investors believe this now and, worse still, the government believes it as well. We are probably doomed to a lasting legacy of government tampering with financial markets and the economy, which is likely to create the mother of all moral hazards. The government is blissfully unaware of the wisdom of Friedrich Hayek: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”)

Took the words right out of your mouth, didn't he? And this is exactly why he is considered one of the greatest investors out there. For more resources on Klarman's hedge fund, we've previously posted up Baupost Group's portfolio, a past interview with Klarman, as well as some of his prior investment insight.

What We're Reading ~ 3/5/10

A great read on one of the original hedgies that profited from subprime, an excerpt from Michael Lewis' new book: The Big Short [Vanity Fair]

An in-depth 3-part presentation on Life Partners (LPHI), a stock Dan Loeb's Third Point has held [Harbor]

Trapeze Asset Management's latest investor letter [My Investing Notebook]

Third Avenue's Marty Whitman talks about value [Manual of Ideas]

An interview with hedge fund manager Whitney Tilson [ValueWalk]

Lessons from Pershing's Ackman [Eric Jackson, TheStreet]

A rare glimpse inside the life of SAC Capital's Steven Cohen [BusinessWeek]

New hedge fund disclosures to start in September [WSJ]

Lee Hobson's Highside Capital Bullish On International Wireless Providers: 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 in our series is H. Lee S. Hobson's hedge fund Highside Capital. He graduated from Princeton University in 1987 and received his MBA from Harvard Business School in 1992. Hobson founded his Dallas, TX based hedge fund in 1993 having previously worked for Lee Ainslie's Maverick Capital. Last year, Hobson presented at the Ira Sohn investment conference and laid out a long idea of Millicom (MICC) and a short of Ritchie Brothers (RBA). While we can't see their short positions, we do know that Highside still has a sizable long stake in MICC. Highside employs a long/short strategy and invests in public equity markets.

The positions listed below were their 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
Cisco (CSCO)
Visa (V)
Google (GOOG)
Conway (CNW)
McDonalds (MCD)
Monsanto (MON)
Aspen Insurance (AHL)
Express Scripts (ESRX)
Automatic Data Processing (ADP)
Devry (DV)
Office Depot (ODP)
Hertz (HTZ)


Increased Positions
Cigna (CI): Increased position by 149%
Mastercard (MA): Increased by 87.5%
Pfizer (PFE): Increased by 41%
NVR (NVR): Increased by 35%
Leap Wireless (LEAP): Increased by 33%
Apple (AAPL): Increased by 29.4%
Bank of America (BAC): Increased by 22.5%


Reduced Positions
Polo Ralph Lauren (RL): Reduced position by 83%
Berkshire Hathaway (BRK.B): Reduced by 43.3%
Gilead Sciences (GILD): Reduced by 35.7%
Qualcomm (QCOM): Reduced by 34%
Goldcorp (GG): Reduced by 33.3%
Dell (DELL): Reduced by 22%
Syniverse (SVR): Reduced by 21%


Removed Positions (Sold out completely):
Chesapeake Energy (CHK)
Macy (M)
EMC (EMC)
Genpact (G)
Harman (HAR)
Dreamworks (DWA)
Raytheon (RTN)
Lamar Advertising (LAMR)
Micron (MU)
Wellpoint (WLP)
Ameriprise (AMP)
Dendreon (DNDN)
Clearwire (CLWR)


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

1. Apple (AAPL): 5.49%
   
2. Lowes (LOW): 4.98%
   
3. Pfizer (PFE): 4.74%
   
4. NII Holdings (NIHD): 4.29%
   
5. NVR (NVR): 3.87%
   
6. Millicom (MICC): 3.84%
   
7. Microsoft (MSFT): 3.79%
   
8. Cablevision (CVC): 3.64%
   
9. Mastercard (MA): 3.64%
   
10. Dell (DELL): 3.60%
    
11. Cisco Systems (CSCO): 3.55%
    
12. JPMorgan Chase (JPM): 3.55%
    
13. Visa (V): 3.48%
    
14. American Tower (AMT): 3.48%
    
15. SBA Communications (SBAC): 3.40%
    

It should be no surprise that we see Apple at the top of yet another big hedgie portfolio. After all, AAPL is one of the top hedge fund holdings. We also see the prominent plays of Mastercard and Visa that oh so many funds have loved. While many hedgies also hold Pfizer, we make note that Highside has one of the more sizable positions out of the funds we've covered. Did we also mention that they substantially increased their holdings in ALL of the above mentioned stocks?

What sets Hobson's hedge fund apart is their focus on international wireless providers. They have large stakes in both NII Holdings (NIHD) and Millicom (MICC). Another interesting position to see on their books is Dell. That stock has not necessarily been in favor with hedgies and so it seems they've taken a bit of a contrarian approach here.

In terms of positions they sold out of completely, they dumped previously large stakes in Chesapeake Energy and Macy's. They also cut EMC from their portfolio and we mention that because we've now seen many hedge funds sell out of this name in the fourth quarter including Bill Ackman's Pershing Square. Highside also significantly reduced their position in Polo Ralph Lauren (RL), but they still owned shares at the end of the fourth quarter. Overall though, they definitely increased their exposure to services.

Data used for this article comes from Alphaclone, our source for backtesting strategies and sorting through all the hedge fund portfolio maneuvers with ease. Assets reported on the 13F filing were $2.1 billion this quarter compared to $1.8 billion last quarter. 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, David Ott's Viking Global, and Chris Shumway's hedge fund Shumway Capital Partners, Chase Coleman's Tiger Global, Philip Falcone's Harbinger Capital Partners, Roberto Mignone's Bridger Management, Thomas Steyer's Farallon Capital, John Burbank's Passport Capital, Brett Barakett's Tremblant Capital, George Soros' hedge fund Soros Fund Management, and Philippe Laffont's Coatue Management Charles Anderson's Fox Point Capital, Bill Ackman's Pershing Square Capital Management and Jonathan Auerbach's Hound Partners. Check back daily for our new updates.

Jonathan Auerbach's Hound Partners Bets On Transdigm Group (TDG): 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 Jonathan Auerbach's hedge fund Hound Partners. Hound is a New York based firm that Auerbach started with assistance from legendary hedgie Julian Robertson. He is one of the many 'Tiger Seeds' that Robertson has sprouted up in an attempt to crank out a new round of successful investment managers. Auerbach of course previously worked for Robertson's Tiger Management.

If you hadn't noticed, we're starting to get into some 'smaller funds' (and we use that term loosely) in regards to assets under management. We started with funds in the billions and now we're covering some that manage hundreds of millions. We've elected to do so in an effort to identify up and coming managers as well as to showcase how smaller funds often run more concentrated portfolios and are easier to track.

The positions listed below were Hound Partners' 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
DirecTV (DTV) & Liberty Media Starz (LSTZA) ~ both as a result of the recent merger
Windstream (WIN)


Increased Positions
Monsanto (MON): Increased position size by 68.7%
Heckman (HEK): Increased by 18.9%
Transdigm Group (TDG): Increased by 15.8%
Chimera (CIM): Increased by 12.4%


Reduced Positions
American Tower (AMT): Reduced position size by 49.6%
Rambus (RMBS): Reduced by 42.1%
Abovenet (ABVT): Reduced by 38%
Heckmann WTS (HEK-WS): Reduced by 33.5%
Arabian Amern (ARSD): Reduced by 32.9%
Grace WR & Co (GRA): Reduced by 27.7%
HQ Sustainable (HQS): Reduced by 22.1%



Removed Positions (Sold out completely):
Liberty Media (LMDIA) ~ merger complete
Berkley (WRB)
Google (GOOG)
Myriad Pharma (MYRX)
Alexandria Real Estate (ARE)


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

1. Transdigm Group (TDG): 13.98%
2. DirecTV (DTV): 10.6%
3. Kinder Morgan (KMR): 10.17%
4. Liberty Media Starz (LSTZA): 8.57%
5. Grace WR & Co (GRA): 7.01%
6. Petrohawk (HK): 6.86%
7. Monsanto (MON): 6.73%
8. Abovenet (ABVT): 6.31%
9. Heckmann (HEK): 5.44%
10. Covanta (CVA): 4.73%
11. Great Lakes (GLDD): 3.98%
12. Chimera (CIM): 3.86%
13. Echostar (SATS): 2.40%
14. Usec Bonds: 1.97%
15. American Tower (AMT): 1.80%
    

While these SEC filings obviously do not disclose their entire set of positions or assets under management, one thing you can immediately notice about Hound Partners is the fact that a lot of their US long equity stakes are very concentrated. Their top 10 positions are far more concentrated than the vast majority of hedge funds we've tracked in our series. In fact, their 10th largest stake garners a larger portfolio weighting than many other hedgies' top position. (Keep in mind that there are still some gaps left in the portfolio picture that we can't see since they aren't included in disclosures). That said, Hound still runs a more concentrated basket of stocks and as such is a good fund for tracking purposes as you know they have conviction in their plays.

One of their interesting positions we took note of was Heckmann (HEK) as we've not seen it pop up in other hedgie portfolios. In the past, this has been labeled as a backdoor Chinese water play. Their largest and most notable stake though is in Transdigm Group (TDG) and we highlight this because Dan Loeb's Third Point is also betting big on TDG.

Auerbach's hedge fund had a massive stake in Liberty Media (over 14% of their previously reported assets) that has now translated into positions in Liberty Starz and DirecTV as a result of the merger. We see yet another hedge fund interested in tower stocks and Hound Partners has chosen to play this data theme via American Tower. However, they did chop their position in half over the past quarter so take note. The only major addition they made was to their existing stake in Monsanto (MON) as they increased it by over 68%. In terms of sales, they let a third of their GRA position go and cut even more of their ABVT stake.

Data used for this article comes from Alphaclone, our source for backtesting strategies and sorting through all the hedge fund portfolio maneuvers with ease. Assets reported on the 13F filing were $348 million this quarter compared to $347 million last quarter. 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, David Ott's Viking Global, and Chris Shumway's hedge fund Shumway Capital Partners, Chase Coleman's Tiger Global, Philip Falcone's Harbinger Capital Partners, Roberto Mignone's Bridger Management, Thomas Steyer's Farallon Capital, John Burbank's Passport Capital, Brett Barakett's Tremblant Capital, George Soros' hedge fund Soros Fund Management, and Philippe Laffont's Coatue Management, and Charles Anderson's Fox Point Capital. Check back daily for our new updates.

Dan Loeb's Hedge Fund Third Point: Net Long Distressed Debt & MBS

In the past, we've detailed the portfolio of Dan Loeb's hedge fund Third Point LLC. At that time we saw they were fond of Citigroup (C) and Transdigm Group (TDG). Third Point has a fund that is registered offshore and reports data each month to the London Stock Exchange. From their recent report we see some interesting performance statistics:

Third Point Offshore
February 2010: +3.2%
Year-to-date 2010: +6.8%
Annualized Return: 17.9%
Cumulative Performance: 788%
Annual Standard Deviation: 13.7%
Annual Downside Deviation: 8.1%
Sharpe Ratio: 1.27
Correlation to the S&P 500: 0.38

As you can see, Third Point has generated solid annualized returns with a low correlation to the market and decent Sharpe Ratio. This achievement is one of the main reasons we follow them in our hedge fund portfolio tracking series. Turning to their recent equity exposure levels we see that Loeb's hedge fund is net long financials and healthcare while being net short the market indicies & FX. Here's the full breakdown of their equity exposure:

Basic Materials: Long 1.4%, Short 0%, Net 1.4%
Communications: Long 3.3%, Short 0%, Net 3.3%
Consumer: Long 12.1%, Short -5.9%, Net 6.2%
Energy: Long 1.4%, Short -2%, Net -0.6%
Financials: Long 15.9%, Short -2.1%, Net 13.8%
Healthcare: Long 8.9%, Short -1.4%, Net 7.5%
Industrials: Long 6.4%, Short -2%, Net 4.4%
Technology: Long 6.1%, Short -1%, Net 5.1%
Utilities: Long 0%, Short 0%, Net 0%
Market Indices/FX: Long 0%, Short -3.8%, Net -3.8%

Total L/S Equity: Long 55.5%, Short -18.2%, Net 37.3%

On the credit side of things, Loeb has the largest net long exposure to distressed assets (Net 29.9%) but also has sizable net long stakes in Performing (Net 14.8%) as well as MBS (Net 18.7%). They also provide a geographic breakdown of exposure for the equities portion of their portfolio:

Americas: long 106%, short -15%
Europe: long 22%, short -2%
Asia: long 2%, short -2%

Some of Third Point's top winners have included Ception Therapeutics, Chrysler (multiple securities), and CIT Group (multiple securities again). Some of their top losers include: Heidelberg Cement, Rexam, Healthnet, and YRC Worldwide. We know that they have been long Healthnet as it appears on their SEC portfolio disclosures. However, their losing position in YRC Worldwide is conspicuous because it did not appear on their last filing. As such, we would venture to guess that they have since started a new long in this name and have suffered as shares have sharply declined over the past month or so.

Overall, here is a breakdown of their top positions (and keep in mind that they own multiple securities of each):

1. Chrysler
2. Delphi
3. CIT Group
4. Dana Holding
5. PHH Corp


Overall, an intriguing and useful update as we get a better look at just how long Loeb's fund is in certain asset classes. For more insight from this hedge fund we recommend checking out Dan Loeb's recommended reading list as well as our previous coverage of Third Point's portfolio.

Hedge Fund Woodbine Says Global Rebalancing Is Most Important Macro Issue

Today we wanted to present you with the January investment letter from Josh Berkowitz's global macro hedge fund Woodbine Capital. Berkowitz of course previously plied his trade at Soros Fund Management before founding his new firm. When we covered Woodbine's prior commentary, we saw they were focused on the dispersion between industrialized & emerging worlds. This theme still prevails and we'll detail their current outlook below. Other current themes include: exit strategies from accomodative monetary policies, fiscal consolidation, emerging market demand, and capital goods divergence. In the past, we've also posted up an in-depth look at the above which are Woodbine's five current investment themes.

Overall, Woodbine says that global re-balancing is the most important macro issue currently. Going forward, the focus will be on fiscal tightening and they highlight that the US and the UK are very unlikely to drive incremental growth in this rebalancing act. They also note that, "Through this period of higher uncertainty we are navigating our pro-cyclical risk through tactical shorts in global equities."

In terms of their current portfolio positioning, they have been adding to bullish fixed income exposure, bullish foreign exchange positions in Asia, positions in emerging market banks, long positions in commodity intermediaries, and short US companies focused domestically. To play the dispersion theme we've posted up about before, Woodbine is net long vega and they've purchased tail risk options with the proceeds they've received from selling volatility.

Woodbine doesn't feel that sovereign risk is the next crisis. Instead, they believe it is merely an extension of the current one. In order for the global re-balancing to take place, fiscal tightening will definitely need to be more proactive they argue. Woodbine concludes that,

"The natural adjustment for countries on the wrong side of global imbalances is to live below their means for an extended period of time, reversing the process from the pre-crisis period. Fiscal policy plays a far more important role than monetary policy in that process. Countries on the right side of those imbalances can help in the adjustment with the pursuit of policies that encourage domestic growth. Exchange rate policies are the most relevant symbol. We remain optimistic that this need not end badly for the world economy. There will be winners and losers in every cycle, but government policy has a lot more control on the outcome than in the past."

Embedded below is Woodbine Capital's January letter to investors. RSS & Email readers you will need to come to the site in order to view it:



So in large they stick with their current investment themes from last time around. You can't argue with the notion that the UK and US can't be relied upon for growth going forward. Given all that these countries have to digest, a tepid response is the most likely. What will be interesting to watch is the response from emerging markets. As we begin a cycle of fiscal tightening, you enter a global situation with a ton of moving parts. Throw one wrench in the system and everything goes haywire. This just goes to show how difficult of a job the policymakers have in their attempts to perfectly time everything. After all, we know that market timing can be a b*tch.

For more great investment insight from hedge fund Woodbine, check out their in-depth look at everyone's favorite precious metal in their piece, Gold: The Anti-Goldilocks. We'll leave you with this gem from their letter: "There is no free-lunch in a deleveraging cycle."

Whitney Tilson's T2 Partners Letter: February 2010

Whitney Tilson and Glenn Tongue are out with their latest investor letter from their hedge fund T2 Partners. In the February letter, we learn that T2 Partners' fund was up 7.0% for February and is up 5.3% year-to-date for 2010 compared to a -0.6% return for the S&P 500. Since inception, their T2 fund has returned 240.9% gross and 175.4% net. We've also recently posted up T2's annual letter which is full of details regarding their positions and their investment outlook. Additionally, we've posted T2's investment outlook and presentation of 3 stock ideas.

Tilson notes that their performance has been driven by their longs of General Growth Properties (GGWPQ) and Borders Group (BGP) among others. Additionally, their short of Palm (PALM) helped boost the bottom line. In the letter, Tilson quickly touches on the developments surrounding their GGWPQ position and attaches articles summarizing the situation. And speaking of GGWPQ, we just posted an update regarding Bill Ackman & hedge fund Pershing Square's economic exposure to the mall REIT.

Embedded below is T2 Partners brief February update:



You can directly download the .pdf here.

For more investment insight from Tilson, make sure to check out his upcoming appearance at the Value Investing Congress along with many other prominent hedge fund managers. The event is already 75% sold out so sign-up before it's full. We've secured a discount for our readers with discount code: P10MF6 so take advantage of it.

Pershing Square's Economic Exposure to General Growth Properties (GGWPQ)

Due to activity on February 24th, 2010, Bill Ackman's hedge fund firm Pershing Square Capital Management has updated us on the size of their General Growth Properties (GGWPQ) stake. In an amended 13D filed with the SEC, Pershing has disclosed a 7.5% ownership stake with 23,953,782 shares. (This total is based off of 317,304,759 common shares outstanding). However, if you dig into the fine print you see that Pershing also has economic exposure to 54,907,669 shares via total return swaps. As such, their total exposure is 78,861,451 shares. This brings their total aggregate economic exposure in General Growth Properties to 24.9% of outstanding common shares. While it is just speculation on our part, we'd estimate that Ackman has made easily over $700 million on this investment. Not to mention, the scenario is still playing out with further possible upside. Also, it just recently hit the news wires that General Growth has won four more months to control its bankruptcy. President and CCO Tom Nolan will be on television tomorrow morning, undoubtedly to talk about the developments.

Our apologies for not posting this up sooner for those interested. This finally gives us a true look at Pershing's overall exposure to General Growth. Remember that in the past the SEC had deemed General Growth an 'un-reportable security' most likely due to the fact it was emerging from bankruptcy. As such, we had been kept somewhat in the dark as to exactly how much GGWPQ they owned these days. In addition to the amended 13D, Pershing Square also attached two exhibits regarding the proposed venture with Brookfield Asset Management. Those following the specifics of this ordeal should make sure you read exhibit A and exhibit B if you haven't already.

Overall, things appear to be panning out in Pershing's favor and they'll have undoubtedly made a boatload of money on this play. For more on this hedge fund, head to our post detailing Bill Ackman's portfolio as well as our profile of Pershing Square.

Warren Buffett On Succession Planning & Investments

Below is an interesting clip from Warren Buffett's recent television tour where he talked about all things Berkshire Hathaway (BRK.A / BRK.B). He is questioned on possible succession plans and the names of Ajit Jain and David Sokol are both tossed around. Additionally, the interview encompasses talk of some of his investments. As always, worth listening to what the Oracle of Omaha has to say. And if you haven't checked out the list yet, make sure to pick up some of the books on Warren Buffett's recommended reading list.

One thing we did want to highlight though that has seemingly slipped through the cracks is the fact that Buffett had raised his stake in the supermarket Tesco. What's interesting is that in Buffett's annual letter he noted he had increased the position to 3%. Typically an investment of that threshold would have triggered a regulatory filing in the UK but we couldn't find one over there. So, we assume here that Buffett's stake is actually at 2.99% or so.... technicalities. Buffett first bought Tesco in 2006 as the supermarket had plans to enter the US market.

Below is the video of Buffett's discussion on succession plans and some of his investments:



As always, we've been covering his movements in-depth and you can view Warren Buffett's portfolio as well as Berkshire Hathaway's annual letter. Many are concerned about succession plans at Berkshire, but they are keeping them close to the vest. In the past we've posted an excellent video that examines potential Berkshire successors and we recommend checking it out.

Charles Anderson's Hedge Fund Fox Point Capital: Portfolio Update (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 Charles Anderson's hedge fund Fox Point Capital. Prior to founding Fox Point, Anderson worked at John Griffin's Blue Ridge and before that at Julian Robertson's Tiger Management. As such, he joins the ranks of other prominent 'Tiger Cub' hedge funds and Anderson received help and funding from Robertson to launch. Anderson received his degree from the University of North Carolina at Chapel Hill (rough basketball season for them this year, ouch!) and his MBA from Stanford. The strategy is simple: go long good companies at fair valuations and short poor businesses trading at higher multiples. This is the first time we've detailed Fox Point's portfolio and we look forward to seeing what they've been up to. The positions listed below were Fox Point'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
Ebay (EBAY)
Wellpoint (WLP)
H&R Block (HRB)
Intercontinental Exchange (ICE)
Virgin Media (VMED)
Amazon (AMZN)
Deckers (DECK)
Cigna (CI)
Monsanto (MON)
Warnaco (WRC)
Mastercard (MA)
JPMorgan Chase (JPM)
Black & Decker (BDK)
iShares Russell 2000 (IWM) Puts
Lender Processing (LPS)
Snap-On (SNA)
J Crew (JCG)
NVR (NVR)
Healthnet (HNT)


Increased Positions
IAC Interactive (IACI): Increased position by 120%
Verisign (VRSN): Increased by 60%
Mattel (MTL): Increased by 60%
Apple (AAPL): Increased by 40%
Allergan (AGN): Increased by 20%
ROVI (ROVI): Increased by 14%


Reduced Positions
Altria Group (MO): Reduced position by 40%
iShares China ETF (FXI) Puts: Reduced by 38.5%


Removed Positions (Sold out completely):
Cisco (CSCO)
Pfizer (PFE)
Heinz (HNZ)
Vistaprint (VPRT)
Amgen (AMGN)
Pepsico (PEP)
Sara Lee (SLE)
AT&T (T)
Itau Unibanco (ITUB)
Skyworks (SWKS)
Apollo Group (APOL)
Medassets (MDAS)
Priceline.com (PCLN)
Credicorp (BAP)
Starent Networks (STAR)
Dollar Tree (DLTR)
Mckesson (MCK)


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

1. iShares FTSE/Xinhua China 25 Index ETF (FXI) Puts 13.77%
   
2. Rovi (ROVI): 7.40%
   
3. Ebay (EBAY): 7.29%
   
4. DirecTV (DTV): 6.79%
   
5. Apple (AAPL): 6.01%
   
6. Wellpoint (WLP): 5.94%
   
7. H&R Block (HRB): 5.53%
   
8. Verisign (VRSN): 4.74%
   
9. IAC Interactive (IACI): 3.67%
   
10. Intercontinental Exchange (ICE): 3.29%
    
11. Virgin Media (VMED): 3.29%
    
12. Mattel (MAT): 3.26%
    
13. Allergan (AGN): 3.08%
    
14. Amazon (AMZN): 2.74%
    
15. Altria Group (MO): 2.40%
    

One of the main things you'll notice about hedge fund Fox Point's portfolio is how different it is from typical Tiger Cub portfolios. Rather than finding popular 'groupthink' type hedge fund favorite stocks, they seem to take a slightly different path. Fox Point's top position is either a bearish bet on or hedge against China as they own puts on the popular Chinese index exchange traded fund. While it's still their largest disclosed position, they did reduce their holdings by 38% last quarter. Rovi (ROVI) is interesting because this is the first time we've seen this name pop-up in a hedgie's portfolio.

They unloaded shares of hedge fund favorites Cisco, Pfizer, and Pepsico. Additionally, they completely exited their Priceline.com position, one we've previously seen Tiger Cubs fond of but recently saw Stephen Mandel's Lone Pine sell out of as well. Lastly, the debate regarding for-profit education plays wages on. Fox Point exited their Apollo Group stake and David Stemerman's Conatus Capital recently exited as well. On the other hand, Chase Coleman's Tiger Global recently started a large APOL stake. So, choose your side on this one. Overall, Anderson's hedge fund was doing the majority of their maneuvering via brand new stakes and completely selling out of old positions.

Data used for this article comes from Alphaclone, our source for backtesting strategies and sorting through all the hedge fund portfolio maneuvers with ease. Assets reported on the 13F filing were $613 million this quarter compared to $697 million last quarter. 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, David Ott's Viking Global, and Chris Shumway's hedge fund Shumway Capital Partners, Chase Coleman's Tiger Global, Philip Falcone's Harbinger Capital Partners, Roberto Mignone's Bridger Management, Thomas Steyer's Farallon Capital, John Burbank's Passport Capital, Brett Barakett's Tremblant Capital, George Soros' hedge fund Soros Fund Management, and Philippe Laffont's Coatue Management. Check back daily for our new updates.

Philippe Laffont's Coatue Management Focused On Technology: 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 Philippe Laffont's hedge fund Coatue Management. The fund was founded in 1999 and specifically focuses on technology, media and telecom. Coatue employs a typical long/short strategy and like to avoid big directional bets. Interestingly, one of Laffont's mantras is to "dare to be different." This means that he likes to focus on stocks not necessarily right in the spotlight. Laffont focuses on technology specifically and reportedly Coatue were some of the first to get their hands on an iPhone when it was launched. For more thoughts on the sector from Coatue, check out excerpts from their technology trends presentation. Laffont had previously worked for Julian Robertson's Tiger Management and as such is classified as a 'Tiger Cub' hedge fund. As such, the fund is part of the Tiger Cub portfolio that was created with Alphaclone and replicates a basket of stocks handpicked by these hedge fund managers.

The positions listed below were Coatue'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
Crown Castle (CCI)
American Tower (AMT)
Qualcomm (QCOM)
SBA Communications (SBAC)
Palm (PALM)
MGM Mirage (MGM)
Popular (BPOP)
Amazon (AMZN)
Brocade (BRCD)
Amedisys (AMED)
Barnes & Noble (BKS)
Applied Materials (AMAT)
Emulex (ELX)
Fortinet (FTNT)


Increased Positions
F5 Networks (FFIV): Increased by 130%
Yahoo (YHOO): Increased by 51%
Synaptics (SYNA): Increased by 46.5%
Google (GOOG): Increased by 42.3%
Equinix (EQIX): Increased by 34.9%


Reduced Positions
E*Trade (ETFC): Reduced by 11.3% ~ we detailed their initial position back in August of 2009


Removed Positions (Sold out completely):
Research in Motion (RIMM)
Baidu (BIDU)
Sohu (SOHU)
Netease (NTES)
Taiwan Semiconductor (TSM)
Eastman Kodak (EK)
Bankrate (RATE)
Level 3 Communications (LVLT)
Synopsys (SNPS)
Microsemi (MSCC)
Netflix (NFLX)
Garmin (GRMN)
Nutrisystem (NTRI)
Silicon Motion (SIMO)
Sandisk (SNDK)
Novatel (NVTL)
Travelzoo (TZOO)
Gannett (GCI)
Utstarcom (UTSI)


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

1. Apple (AAPL): 17.27%
   
2. Google (GOOG): 10.01%
   
3. Equinix (EQIX): 8.85%
   
4. F5 Networks (FFIV): 8.55%
   
5. E*Trade Financial (ETFC): 6.20%
   
6. Citrix Systems (CTXS): 6.12%
   
7. Crown Castle (CCI): 5.93%
   
8. TD Ameritrade (AMTD): 5.16%
   
9. Visa (V): 4.1%
   
10. American Tower (AMT): 3.63%
    
11. Yahoo (YHOO): 3.16%
    
12. Qualcomm (QCOM): 2.47%
    
13. SBA Communications (SBAC): 2.41%
    
14. Palm (PALM): 2.19%
    
15. Synaptics (SYNA): 2.01%
    

As you can see, Coatue Management is definitely focused on technology. Hedgie favorites Apple and Google dominate the bulk of the reported long US equity positions in their portfolio. Not far behind though is Equinix (EQIX), another play we're starting to see more managers add and we already know Shumway Capital Partners has a large EQIX stake too. Additionally, the tower stocks theme is heavy here as Coatue owns all three majors: CCI, AMT, and SBAC. Not to mention, they just started these brand new stakes all this past quarter. This is a bit different as we've seen many other hedgies favor one tower stock over the other. John Griffin's Blue Ridge, for instance, favors CCI. Coatue has exposure to all three though.

Another thing we noticed was their exposure to the brokerages through a large position in E*Trade Financial and a slightly smaller one in TD Ameritrade. Price wars in the online brokerage industry are heating up and many see ETFC as a takeover target. In terms of positions they sold completely out of, Coatue dumped RIMM, BIDU, and SOHU, all which were previously quite large positions for them. They didn't alter their previously owned positions too much. The vast majority of their maneuvers were made via purchasing brand new positions or completely dumping others.

Given all the negativity surrounding shares of Yahoo (YHOO), it was also intriguing to see them add to their stake. Some argue this is now a value play, while others argue the company is quickly being left behind the rest of the tech pack. Clearly Coatue sees some sort of value here and this fits Laffont's road-less-traveled mantra. Overall, if you're looking for good bets on the technology sector, you've certainly come to the right place. Not to mention, many of their holdings are among the top stocks held by hedge funds.

Data used for this article comes from Alphaclone, our source for backtesting strategies and sorting through all the hedge fund portfolio maneuvers with ease. Assets reported on the 13F filing were $2.0 billion this quarter compared to $2.2 billion last quarter, a slight decrease in exposure. 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, David Ott's Viking Global, and Chris Shumway's hedge fund Shumway Capital Partners, Chase Coleman's Tiger Global, Philip Falcone's Harbinger Capital Partners, Roberto Mignone's Bridger Management, Thomas Steyer's Farallon Capital, John Burbank's Passport Capital, Brett Barakett's Tremblant Capital, and George Soros' hedge fund Soros Fund Management. Check back daily for our new updates.

PIMCO's Bill Gross On Corporate Versus Sovereign Bonds: March Commentary

Bill Gross is out with his latest commentary from PIMCO. In his March 2010 investment outlook entitled 'Don't Care', Gross focuses on the lack of global aggregate demand and how we got into this whole situation. The first part of his commentary doesn't really focus on markets, but rather on social situations. It is still comical (and shockingly somewhat true) and eventually ties into his market discussion, providing a decent analogy. Previously, we've also posted Gross' previous outlook as well as his thoughts on why the market is up so much from the lows.

Given Gross' natural focus on all things fixed income, he comments on how sovereign bonds have been hit hard and as of late have even been surrounded with more negativity than corporate debt. With the recent wave of default concern, it's intriguing that the roles of these types of bonds have flipped. Previously, sovereign bonds were considered safer than corporates. Nowadays, investors are re-considering and some corporates now look safer than some sovereigns. In terms of recommendations, he likes strong sovereign bonds including Germany and Canada.

Gross writes,

"It is interesting to observe that over the past few months when investors have begun to question the ability of governments to exit the debt crisis by “creating more debt,” that increases in bond market yields have been confined almost exclusively to Treasury/Gilt-type securities, and long maturities at that. There has even been a developing debate in the press (and here at PIMCO) as to whether a highly-rated corporation could ever consistently trade at lower yields compared to its home country’s debt. I suspect not, but the narrowing in spreads since late November solicits an interesting proposition: Government bailouts and guarantees such as those evidenced and envisioned in Dubai and Greece, as well as those for the last 18 months with banks and large industrial corporations across the globe, suggest a more homogeneous “unicredit” type of bond market. If core sovereigns such as the U.S., Germany, U.K., and Japan “absorb” more and more credit risk, then the credit spreads and yields of these sovereigns should look more and more like the markets that they guarantee. The Kings, in other words, in the process of increasingly shedding their clothes, begin to look more and more like their subjects. Kings and serfs begin to share the same castle.

This metaphor doesn’t really answer the critical question of whether a debt crisis can be cured by issuing more debt. The answer remains: It depends – on initial debt levels and whether or not private economies can be reinvigorated. But it does suggest the likely direction of sovereign yields IF global policymakers are successful with their rescue efforts: Sovereign yields will narrow in spreads compared to other high-quality alternatives. In other words, sovereign yields will become more credit like. When sovereign issues become more credit-like, as evidenced in Greece, Spain, Portugal, and a host of others, they move closer in yield to the corporate and Agency debt that supposedly rank lower in the hierarchy. That process of course can be accomplished in two ways: high-quality non-sovereigns move down to lower levels or governments move up. The answer to which one depends significantly on future inflation, the aftermath of quantitative easing programs, and the vigor of the private economy going forward. But the contamination of sovereign credit space with past and future bailouts is a leveler, a homogenizer, a negative for those sovereigns that fail to exert necessary discipline. Only if global economies stumble and revisit the recessionary depths of a year ago should the process reverse direction and place Treasuries, Gilts, et al. back in the driver’s seat."


To read the rest of Bill Gross' commentary, directly download it via .pdf here.

For more investment insight from market gurus, check out Warren Buffett's annual letter as well as Eddie Lampert's annual letter. Additionally, make sure to check out our past coverage of a ton of very insightful commentary from hedge funds.

Soros Fund Management's Portfolio: Adds Citigroup & Monsanto, Dumps Potash (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 hedge fund Soros Fund Management. While many will automatically attribute this fund to George Soros, much of the credit also goes to his son Robert Soros who runs the flagship Quantum Endowment Fund. But for those of you wanting an inside look at George Soros' portfolio, look no further. We follow Soros' portfolio movements due to his macro sense and solid track record. We like to see what sectors he is flocking to and these filings are the perfect example of possible themes his firm might be seeing. Soros Fund Management is a true global macro player as they dabble in pretty much any asset class they desire, so just keep that in mind as the below only details their equity and options holdings.

In the past Soros has said one of his main concerns is the deleveraging of the US consumer over a longer period of time which will hurt consumer spending and thus growth going forward. More of Soros' thoughts on the financial markets are detailed in his latest book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means.

For 2009, Soros' Quantum Endowment Fund was up 28% as noted in our hedge fund performance numbers list. In the past we've also detailed some of their recent portfolio maneuvers. The positions listed below were their 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
Citigroup (C)
DirecTV (DTV)
Select Sector Financials (XLF)
Calls Bunge (BG)
Kinross Gold (KGC)
Autonation (AN)
The rest of their new holdings were less than 0.5% of reported assets each:
Dollar General (DG), Heinz (HNZ), Orbital Sciences Bonds, Shanda Games (GAME), Hasbro (HAS), CTrip (CTRP), RailAmerica (RA), Sandridge Energy (SD), Energy XXI (EXXI), CVR Energy (CVI), Sina (SINA), Transatlantic (TAT), American Axle (AXL), & China Real Estate Information (CRIC)


Increased Positions
Select Sector Financials (XLF): Increased by 63,730% (no, not a typo)
Pfizer (PFE): Increased by 365%
Monsanto (MON): Increased by 244.4%
Suncor (SU): Increased by 171%
SPDR Gold Trust (GLD): Increased by 152%
Emdeon (EM): Increased by 54.6%
Plains Exploration (PXP): Increased by 14%
Hess (HES): Increased by 11.2%


Reduced Positions
Linear Technology Bonds: Reduced by 8%


Removed Positions (Sold out completely):
Potash (POT)
Goldman Sachs (GS) Puts
Audiocodes Notes
S&P 500 (SPY)
Wyeth (WYE) ~ merger transaction complete
iShares Emerging Markets (EEM) Puts
Applied Materials (AMAT)

The rest of the stakes they dumped were quite small, each less than 0.5% of the previously reported assets: Petrohawk (HK), Focus Media (FMCN), SPSS Bonds, RPM (RPM), Liberty Media (LMDIA), Conexant Systems Bonds, Renesola (SOL), MSC Software (MSCS), Navistar (NAV), Covanta (CVA) Calls, S&P 500 (SPY) Puts, & Anadarko Petroleum (APC) Calls


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

1. SPDR Gold Trust (GLD): 7.5%
   
2. Petroleo Brasileiro (PBR): 4.2%
   
3. Hess (HES): 3.9%
   
4. Monsanto (MON): 3.6%
   
5. Citigroup (C): 3.5%
   
6. LSI Bonds: 2.88%
   
7. Suncor (SU): 2.86%
   
8. Petroleo Brasileiro (PBR-A): 2.82%
   
9. Interoil (IOC): 2.42%
   
10. Linear Technology Bonds: 2.4%
    
11. Pfizer (PFE): 2.4%
    
12. Plains Exploration (PXP): 2.18%
    
13. RF Micro Bonds: 2.1%
    
14. Select Sector Financials (XLF): 1.95%
    
15. Mcdata Notes: 1.94%
    

Much has been made in the media recently about the fact that George Soros has been out calling gold a bubble but has more than doubled his exposure to the gold exchange traded fund GLD. First, keep in mind that these portfolio disclosures were as of December 31st, 2009. So technically he could have sold completely out by now. It's also possible that they are merely using this position as a hedge of some sort. Also keep in mind that George is probably less involved with the day-to-day operations of the hedge fund these days as his son Robert is more responsible for running the show at Quantum. So, take that position with a grain of salt considering George Soros' recent comments. And for those of you tracking the precious metal's every move, check out this interesting technical analysis video on gold.

Of the positions they sold, the most notable is definitely Potash (POT). They completely exited their stake and it was previously one of their largest positions. They also exited LMDIA but keep in mind that they received new shares in DTV as a result of the merger transaction. Soros Fund Management continues to hold a large stake in Petroleo Brasileiro as they own both share classes. And while Soros sold off POT, they massively added to MON, another agricultural giant. Like many other hedge funds we've seen, Soros also added shares of Citigroup (C) in the fourth quarter. Soros also significantly boosted their stake in Pfizer, a stock we recently saw that was one of the top hedge fund holdings.

Overall though, some intriguing portfolio changes. To learn how to invest like George Soros, we recommend checking out his first book, The Alchemy of Finance. Data used for this article comes from Alphaclone, our source for backtesting strategies and sorting through all the hedge fund portfolio maneuvers with ease. Assets reported on the 13F filing were $8.8 billion this quarter compared to $6.2 billion last quarter, over a 40% increase in exposure. 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, David Ott's Viking Global, and Chris Shumway's hedge fund Shumway Capital Partners, Chase Coleman's Tiger Global, Philip Falcone's Harbinger Capital Partners, Roberto Mignone's Bridger Management, Thomas Steyer's Farallon Capital, John Burbank's Passport Capital, and Brett Barakett's Tremblant Capital. Check back daily for our new updates.