At The Motley Fool, we understand that it often pays to zig when Wall Street zags, but that doesn't mean that we don't pay attention to what leading fund managers are buying and selling. And hedge funds, which aren't always in lockstep with the broader market, can be a particularly valuable source of insight.
Every quarter, hedge fund managers overseeing more than $100 million must disclose their quarter-end holdings publicly by filing Form 13-F with the SEC. The form lists all U.S.-traded securities the manager held at the end of the quarter. Although the form doesn't disclose the manager's short positions or the manager's intraquarter trades, it can shine a bright light on his or her "long" stock bets. To help us make use of 13-F data, we turned to Motley Fool partner AlphaClone, a research and investment-management firm that tracks hedge fund public disclosures and develops investment strategies based on them.
Q2 2011 update
John Paulson founded Paulson & Company in 1994. The fund is best known for its bet against subprime mortgages during the financial crisis. Thanks in part to that successful gamble, it's grown into one of the world's largest hedge fund companies.
The total market value of Paulson & Co.'s disclosed equity holdings as of June 30, 2011 -- the latest quarter for which data is available -- was $28.2 billion across 88 holdings. It has suffered some substantial losses since June 30, though, as its big bets on the financial sector haven't panned out very well. The crash of Hewlett-Packard (NYSE: HPQ ) , which sank on news that it's getting out of the PC business, also hurt the Paulson fund's fortunes.
The fund company's 10 largest positions and associated changes in number of shares held as of June 30, 2011 were:
- SPDR Gold (NYSE: GLD ) -- unchanged.
- Anglogold Ashanti (NYSE: AU ) -- reduced 2.7%.
- Citigroup (NYSE: C ) -- reduced 91.9%.
- Anadarko Petroleum (NYSE: APC ) -- reduced 21.3%.
- Transocean (NYSE: RIG ) -- reduced 23.1%.
- Capital One Financial (NYSE: COF ) -- increased 17.2%.
- Hartford Financial (NYSE: HIG ) -- reduced 7.8%.
- Wells Fargo (NYSE: WFC ) -- increased 63.9%.
- Hewlett-Packard -- reduced 6%.
- SunTrust Bank (NYSE: STI ) -- reduced 6.3%.
(Note that this data reflects the holdings of all the funds that Paulson & Co. oversees, rather than any one particular hedge fund.)
During the quarter, the fund family also increased its position in Salix Pharmaceuticals and Ralcorp Holdings, among others, while paring back its holdings in stocks such as Bank of America, Comcast, and Medtronic. Last month, The Wall Street Journal noted that Paulson wasn't happy with Bank of America's willingness to negotiate settlements in claims by sizable holders of mortgage-backed securities.
In addition, the fund family sold out of stocks such as International Paper and Kinross Gold entirely. About half its divestitures resulted from merger and acquisition activity, including Alcon's merger with Novartis.
Selected Q2 2011 commentary
Paulson & Co. had more than 47% of its assets in financial companies, and more than 15% in basic materials. Its financial stake has shrunk a bit over recent quarters, but remains by far the fund's largest sector. Energy is the third biggest sector at 10%.
Here's where the firm is currently winning, losing, and making new bets:
Recent winner
Medical device and supply giant Baxter (NYSE: BAX ) was a winner for Paulson in the quarter, rising about 12%, though it lost most of those gains recently in August's market drop. Many are waiting to hear whether the FDA will make the approval process for medical devices more demanding. A decision is due in December, and if there are minimal changes, that will bode well for the sector. It sports a four-star (out of five) rating at Motley Fool CAPS.
Recent loser
Transocean didn't do so well for Paulson in the quarter, losing about 16%. But while Paulson was selling part of his stake, my colleague Michael Olsen was recommending the company. He praised its dominance in the growing arena of deepwater drilling, and what he considered an appealing price. The recent correction has given interested investors an even more attractive entry point, and Transocean's stock commands a maximum five-star rating in Motley Fool CAPS.
New bets
The largest new addition, Life Technologies (Nasdaq: LIFE ) , makes up 1.4% of the total portfolio. It sells systems, services and supplies to the scientific community, and some of its insiders are bullish enough on it to have bought more shares for themselves recently. In the Motley Fool CAPS community, it has a rating of three stars.
That's the latest on John Paulson's moves. Tell us what you think in the comments below.
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