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 funds that aren't always 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.
Q2 2011 update
Par Capital Management is a hedge fund company founded in 1992 by two former airline analysts, Paul Reeder and Edward Shapiro. Like so many of the impressive money managers we follow, they're value-focused, aiming to invest in companies for much less than they're worth.
Why should you look at Par Capital Management's moves? Well, according to AlphaClone's back-test simulation, anyone who invested in Par Capital's 10 largest long positions (in equal portions) at the time they were disclosed publicly each quarter would have gained 231% since 2000, versus a loss of 1% for the S&P 500 (including dividends) as of Sept. 26.
The total market value of Par Capital Management's disclosed equity holdings as of June 30, 2011 -- the latest quarter for which data is available -- was $2.47 billion across 64 holdings. The company's 10 largest positions and associated changes in number of shares held as of June 30, 2011 were:
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Priceline.com
(Nasdaq: PCLN) -- reduced 1.8%. -
UnitedHealth Group
(NYSE: UNH) -- reduced 4.9%. -
United Continental Holdings
(NYSE: UAL) -- reduced 4.5%. -
Expedia
(Nasdaq: EXPE) -- increased 35.3%. -
Southwest Airlines
(NYSE: LUV) -- reduced 56.4%. -
Dollar Thrifty
(NYSE: DTG) -- unchanged. -
Avis Budget
(NYSE: CAR) -- increased 5.3%. -
Penn National Gaming
(Nasdaq: PENN) -- increased 4.7%. -
AMR
(NYSE: AMR) -- increased 122.4%. -
Ameristar Casinos
(Nasdaq: ASCA) -- reduced 37.2%.
During the quarter, Par Capital also increased its positions in Las Vegas Sands
Casino operators such as Melco Crown and Las Vegas Sands have been suffering in our slumping economy, with properties in Macau being a rare bright spot. Las Vegas Sands sports stronger profit margins than Melco Crown at its Macau properties and has seemed like more of a bargain recently, as Melco shares surged some 88% over the past year compared with Las Vegas Sands' 25% gain. Meanwhile, Elan has many investors hopeful about its Multiple Sclerosis drug Tysabri.
Selected Q2 2011 commentary
Par Capital Management has roughly 38% of its assets in the services sector, with transportation and technology comprising another 25% and 22% of the portfolio, respectively. The company has reduced its exposure to transportation a bit over the past few quarters, while modestly upping its exposure to technology. In general, airlines have long been a terrible industry for investors, but Par Capital, with its experience studying them, doesn't shy away from them. Over the past quarter it more than doubled its position in American Airlines parent AMR, but it cut in half its Southwest Airlines stake.
Here's where the firm has been winning and losing and making new bets:
Recent winner
UnitedHealth was a big winner in the quarter, gaining 14.5%. The company has strong fundamentals and low debt, and it stands to gain from health-care reforms as more people end up insured. The company has a five-star rating (out of five stars) at Motley Fool CAPS.
Recent loser
Orbitz Worldwide didn't do as well, sinking 30% in the quarter. The company has had trouble competing with larger rivals such as Priceline.com and Expedia. While its revenue hasn't been growing robustly, it has repeatedly been posting net losses. Orbitz has a four-star rating in Motley Fool CAPS.
New bets
The largest new addition, Alaska Air, is a contrarian play, sporting just a one-star rating at Motley Fool CAPS. It's facing steep fuel prices, but its hedging strategy has helped cushion the blow of higher costs.
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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