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 are rarely in lockstep with the broader market, can be a particularly valuable source of insight.
Every quarter, fund managers overseeing more than $100 million must disclose their quarter-end holdings publicly by filing Securities and Exchange Commission Form 13-F. 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.
Q4 2010 update
David Einhorn is president of Greenlight Capital. Einhorn started the fund in 1996 and invests primarily in publicly traded North American corporate debt offerings and equities. The firm also manages a fund of funds and a private equity fund through its affiliates. The total market value of Greenlight Capital's disclosed equity holdings as of Dec. 31, 2010 -- the latest period for which data is available -- was $4.8 billion across 38 holdings. Here's a snapshot of the portfolio's industry allocations.
The fund's 10 largest positions (shares held) and associated changes as of Dec. 31 were:
(NYSE: ESV)-- No change
(NYSE: PFE)-- Reduced 5.0%
(NYSE: CIT)– Reduced 33.9%
(NYSE: CFN)-- Reduced 4.8%
(Nasdaq: AAPL)-- No change
(NYSE: CAH)-- Reduced 3.7%
(NYSE: S)-- New
Market Vectors Gold Miners
(NYSE: GDX)-- Increased 37.3%
- Microsoft -- Increased 0.3%
(NYSE: NCR)-- No change
During the quarter, besides the top holdings, the fund has increased its positions in several other holdings. Some highlights include Ingram Micro and Becton, Dickinson. On the sell side, the fund reduced its exposure in Health Net and Verigy. The fund also sold out of three stocks: Ralcorp Holdings, Foster Wheeler, and Oritani Financial.
Following Greenlight Capital
Is it worth paying attention to Einhorn's moves? According to AlphaClone's back-test simulation, anyone who invested in Greenlight Capital’s 10 largest holdings at the time they were disclosed publicly each quarter would have returned 232.0% since 2000, versus 10.5% for the S&P 500 (including dividends) as of March 28. Here’s a chart showing AlphaClone’s back-test model:
The strategy above buys/sells its holdings each quarter, five trading days after the SEC's filing window for Form 13-F closes.
Selected Q4 2010 commentary
Greenlight Capital has a diversified portfolio. Financial, technology, and health care are the three biggest sectors, representing 22.0%, 20.7%, and 19.9% of the portfolio, respectively. Here’s where the firm is winning and where it's making new bets:
Ensco was a big winner to close out 2010, rising 20% in the fourth quarter of the last year. The stock comprises 10% of the total portfolio. Enesco is engaged in the drilling of offshore oil and natural gas wells by providing its drilling rigs and crews under contracts with major international, government-owned, and independent oil and gas companies. The company reported revenue of $1.7 billion in 2010 and has a TTM price-to-earnings ratio of 14. The stock has a five-star (out of 5) rating at Motley Fool CAPS.
The largest new addition, Sprint, comprises almost 5% of the total portfolio. The company is the third-largest U.S. wireless carrier and has a market capitalization of $13.7 billion. Sprint has a two-star rating in Motley Fool CAPS.
During the quarter, the fund also started new positions in BP, PotashCorp, Lyondellbasell Industries, SemGroup, and Capitol Federal.
So there you have it, the blow by blow of Greenlight Capital’s latest moves and why it can matter to your portfolio. Tell us what you think in the comments below.
Company data provide 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, click here to visit AlphaClone.
IMPORTANT DISCLOSURES FOR BACKTEST PERFORMANCE RESULTS
Back-testing is the process of evaluating a core strategy by applying it to historical data. Back-tested performance results are provided for purposes of illustrating historical performance had a core strategy had been available during the relevant period. Back-tested performance results are hypothetical and have inherent limitations. AlphaClone makes no representation that any core strategy will achieve performance similar to any back-tested performance results. Actual results could differ materially from back-tested performance and future results could differ materially from back-tested performance. Past performance is no indication or guarantee of future results.
Becton Dickinson, Microsoft, and Pfizer are Motley Fool Inside Value selections. Apple is a Motley Fool Stock Advisor selection. Motley Fool Options has recommended a bull call spread position on Apple and a diagonal call position on Microsoft. The Fool has written puts on Apple and owns shares of Apple, Ensco, and Microsoft. Motley Fool Alpha LLC has written puts on Market Vectors Gold Miners ETF and owns shares of Microsoft. The Motley Fool has a disclosure policy.