Here's What This $20 Billion Hedge Fund Has Been Buying

Every quarter, many money managers have to disclose what they've bought and sold, via "13-F" filings. Their latest moves can shine a bright light on smart stock picks.

Today let's look at SAC Capital Advisors, run by Steven Cohen. SAC is one of the biggest hedge funds around, with a reportable stock portfolio totaling $20.2 billion in value as of Sept. 30, 2012. A fund doesn't easily grow that large without performing well, and indeed, Cohen has reportedly averaged returns of roughly 30% annually over two decades.

The company has been in the news more than usual lately, though, because of an insider-trading scandal. Prosecutors are investigating, with the Securities and Exchange Commission waiting before taking actions of its own.

Interesting developments
So what does SAC Capital's latest quarterly 13-F filing tell us? Here are a few interesting details.

The biggest new holdings are Fossil (Nasdaq: FOSL  ) and calls on the iShares Russell 2000 ETF (NYSE: IWM  ) . Other new holdings of interest include wireless broadband provider Clearwire (Nasdaq: CLWR  ) , which recently jumped on speculation that it might be acquired. The company carries a lot of debt (recently more than $4 billion) and is looking to sell some of its spectrum to help pay it down. It's making sure its new LTE standards are compatible with offerings in China. The company's surging  share count is worrisome, though, as it dilutes the value of existing shares.

Among holdings in which SAC Capital increased its stake was mortgage REIT American Capital Agency (Nasdaq: AGNC  ) , which offers investors a mind-boggling dividend yield near 16%. There are concerns that the dividend may get reduced, but that might not happen for a while.

SAC Capital reduced its stake in lots of companies, including chipmaker Marvell Technology (Nasdaq: MRVL  ) . The company's stock seems cheap these days, as weak PC sales have hurt performance. Bulls like Marvell's partnership with LED specialist Cree (Nasdaq: CREE  ) to produce a dimmable LED bulb and its potential to profit from the growth of cloud computing, while bears would like to see it profit more from the spread of smartphones. Its presence in Microsoft's (Nasdaq: MSFT  ) Surface tablets is promising, but it remains to be seen how successful the Surface will be.

Finally, SAC Capital's biggest closed positions included Ensco (NYSE: ESV  ) and Eli Lilly (NYSE: LLY  ) . Other closed positions of interest include Dendreon (Nasdaq: DNDN  ) and American Capital Mortgage Investment (Nasdaq: MTGE  ) . Most investors in Dendreon, maker of expensive prostate-cancer drug Provenge, have lost a lot of money. But expectations may now be so low that the company could perform surprisingly well -- though it's burning through a lot of cash, too. My colleague Brenton Flynn found some interesting details about it in its financial statements.

American Capital Mortgage, meanwhile, recently sported a dividend yield near 14%. It's another mortgage REIT, investing in both agency-backed and non-agency-backed mortgages. There are reasons to worry about the future for mortgage REITs, such as narrower interest rate spreads and the possibility of rising prepayments shrinking profits. Interested investors should read up.

We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing, and 13-F forms can be great places to find intriguing candidates for our portfolios.


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  • Report this Comment On December 01, 2012, at 8:17 PM, billr861 wrote:

    Gary Cane, I hope I spelled his name right, is the Chief Investment Officer for both AGNC (Am Capital Agency) and MTGE (Am Capital Mortgage). Obviously he ought to know every detail about how these two companies he runs operate, especially going forward. Point is, he just a couple weeks ago invested $588K of his own money into one of them and none into the other. Guess which one? It wasn't the one Mr Cohen kept. As noted in the article above, the interest rate spread is being squeezed more and more and since AGNC can only acquire MBS, they're caught in the squeeze and can't get out unless they change their charter. MTGE on the other hand is a hybrid and can invest in anything they want to....I moved from AGNC to MTGE along with Mr Cane....Due respect to Mr Cohen, but I think he's got this one wrong.

  • Report this Comment On December 02, 2012, at 12:59 PM, yourbestfriend wrote:

    Close. It's Gary Kain.

    And I agree. MTGE's access to non-Agency MBS gives it more flexibility and a better chance to avoid the worst of a rate-spread squeeze than AGNC will get. MTGE was, ostensibly, created to correct two flaws the managers saw in AGNC:

    1. ACAS had sold their own shares in AGNC, and were missing out on big equity gains. They took a big stake in MTGE at its IPO. In the past quarter they filed a shelf statement opening several kinds of MTGE securities to sale, including their insider shares, but have not reported selling any yet. I'd be surprised if they have.

    2. Flexibility. A hybrid mREIT can access more types of RE securities, and diversification is preferable to limitation when uncertainty appears.

    I have some of MTGE and AGNC (and ACAS, their management company, of which Mr. Kain is an employee). While I haven't fully moved from AGNC to MTGE, when I add to my holdings in the sector now it's in MTGE.

    I too am surprised that SAC went the other way, and I'm sure SAC, upon seeing the results the past couple of months, will be disappointed in its choice.

    That is, if it's not too busy with other things to check what its stocks are doing...

  • Report this Comment On December 03, 2012, at 6:00 PM, MattC69 wrote:

    "Clearwire... The company's surging share count is worrisome, though, as it dilutes the value of existing shares..."

    I would be grateful if you would please back this statement up with some facts. As I understand it, the equity offering of earlier this year was canned nearly 6 months ago. So I'm very interested to hear how "the company's surging share count" is occuring as I am likely one of those to be affeted "as it (CLWR) dilutes the value of existing shares..."

    So please, avail us all of this new information, which appears to lack any filing with SEC as its basis... Thanks!

  • Report this Comment On December 12, 2012, at 11:50 AM, Michaelb123a wrote:

    So SAC buys AGNCY and sells MTGE? And then there that old grind about Opertion Twist after the MTGE sale portion. 17% of MTGE holdings are non agency. They use a lot less leverge for these securities. All the buggaboos that MF likes to boor people with. Even Gundlach is trying to throw some scare into the Mreits about less divvy i.e. less share price. Howse bout some fiscal cliff talk mix here too? "State of Fear" helps my portfolio and return. Sell ' em guys.

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