At The Motley Fool, we understand that it often pays to zig when the rest of Wall Street zags. Like us, hedge funds rarely move in lockstep with the broader market. By tracking these little-followed funds' buy and sell decisions, we can often gain valuable insights into opportunities the market might be missing.
Every quarter, any fund managers overseeing more than $100 million must publicly disclose their quarter-end holdings with the Securities and Exchange Commission's Form 13-F. It lists all U.S.-traded securities the fund's manager held at the end of the quarter. Although the form doesn't disclose short positions or intraquarter trades, it can illuminate long stock bets.
To better decipher this 13-F data, we turned to Motley Fool partner AlphaClone, a research and investment-management firm that develops investment strategies based on hedge funds' public disclosures.
Meet Appaloosa Management
David Tepper founded Appaloosa Management in 1993. He typically invests in equities and debt of distressed companies, including those in bankruptcy. The total market value of Appaloosa Management's disclosed equity holdings as of March 31 -- the latest quarter for which data is available -- was $3.9 billion across 54 holdings.
Why should you care? Because according to AlphaClone's back-test simulation, if you'd invested in Appaloosa's 20 top holdings as they were disclosed publicly each quarter, you would have earned a total return of 745.1% between January 2000 and now, versus just 11.3% for the S&P 500.
The fund's 10 largest positions (by value) and associated share-count changes as of March 31 were:
- Citigroup (NYSE: C ) -- reduced 34.8%
- Pfizer (NYSE: PFE ) -- reduced 6.9%
- Hewlett-Packard (NYSE: HPQ ) -- increased 8.3%
- Bank of America (NYSE: BAC ) -- reduced 31.3%
- Goodyear Tire & Rubber (NYSE: GT ) -- increased 51.3%
- International Paper (NYSE: IP ) -- increased 6.3%
- Macy's (NYSE: M ) -- increased 28.5%
- Micron Technology (Nasdaq: MU ) -- reduced 31.3%
- United Continental Holdings (NYSE: UAL ) -- increased 49.0%
- Dean Foods (NYSE: DF ) -- increased 21.9%
Outside the top 10 holdings:
- Rising Positions: The fund increased its positions in Mueller Water and US Airways Group.
- Falling Positions: The fund reduced its exposure to Newcastle Investment and Manitowoc.
- Eliminated Positions: During the quarter, the fund sold out of stock positions in Cisco Systems and Johnson & Johnson.
Selected Q1 2011 commentary
Appaloosa Management has a highly diversified portfolio, with financials and technology stocks making up almost half the portfolio. Here's where the firm is winning and losing, and making new bets, at the moment:
- Current winner: Micron Technology did very well, increasing 43% in the first quarter. The stock comprises 3.6% of the total portfolio.
- Current laggard: Top holding Citigroup fell almost 7% in the first quarter. It made up 8.6% of the portfolio at the end of the quarter.
- New bets: Among more than a dozen new additions, Valero Energy and Apple are the biggest components of the portfolio, representing 1.9% and 1.8% of total assets, respectively.
So there you have it -- the blow-by-blow of Appaloosa Management LP's latest moves. Tell us what you think in the comments section below.
Company data provided by AlphaClone LLC, a San Francisco-based research and investment-management firm that tracks hedge-fund public disclosures. For more information on the firm's investment approach, visit AlphaClone.
IMPORTANT DISCLOSURES FOR BACKTEST PERFORMANCE RESULTS
Backtesting is the process of evaluating a core strategy by applying it to historical data. Backtested performance results are provided for purposes of illustrating historical performance had a core strategy had been available during the relevant period. Backtested performance results are hypothetical and have inherent limitations. AlphaClone makes no representation that any core strategy will achieve performance similar to any backtested performance results. Actual results could differ materially from backtested performance, and future results could differ materially from backtested performance. Past performance is no indication or guarantee of future results.