Practical analysis for investment professionals
21 February 2013

13F Watch: Fund Managers Add Financials, Trim Technology, and Face Off over Herbalife

Posted In: Equity Investments

In the fourth quarter of 2012, institutional investors added to holdings in financial stocks while reducing their exposure to the technology sector. Among the most widely held stocks, portfolio managers as a group added to positions in Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPM), and American International Group (AIG), and trimmed positions in Apple (AAPL), Microsoft (MSFT), AT&T (T), and International Business Machines (IBM).

Following the quarterly portfolio moves of some of the most celebrated investors has become popular sport, but is it profitable? Recent history suggests that mimicking their trades may not necessarily yield returns worthy of celebration. Over the past decade, as the Economist recently noted, “the profits passed on to [hedge fund] investors are almost certainly lower than the fees creamed off by the managers themselves.”

This suggests that while hedge funds do occasionally provide good theater — the latest being the battle being waged between longs and shorts over Herbalife (HLF) — their investments may best be regarded as contrarian signals. With that in mind, here are some of the notable changes made by several prominent investors in the fourth quarter of 2012:

  • Bill Ackman (Pershing Square Capital): Ackman established a well-publicized short position in Herbalife (HLF), contending it is “the best-managed pyramid scheme in the history of the world.” He also eliminated his stake in Alexander & Baldwin (ALEX). At the end of 2012, Ackman’s top holdings included Canadian Pacific Railway (CP), Procter & Gamble (PG), General Growth Properties (GGP), Beam (BEAM), and JC Penney (JCP).
  • Kyle Bass (Hayman Advisors): Among Bass’ new positions were stakes in Huntsman (HUN), Nationstar Mortgage Holdings (NSM), Tempur-Pedic International (TPX), VIVUS (VVUS), and Newcastle Investment (NCT). Sold from the portfolio were Six Flags Entertainment (SIX) and Electronic Arts (EA). Bass’s top holdings at the end of 2012 included Huntsman (HUN), Nationstar Mortgage Holdings (NSM), Tempur-Pedic International (TPX), VIVUS (VVUS), and Newcastle Investment (NCT).
  • Bruce Berkowitz (Fairholme Funds): Berkowitz added to his position in Sears Holdings (SHLD) and reduced positions in CIT Group (CIT), MBIA (MBI), Citigroup (C), Orchard Supply Hardware Stores (OSH), and Berkshire Hathaway (BRK.B). At the end of 2012, American International Group (AIG), Bank of America (BAC), Sears Holdings (SHLD), St Joe (JOE), and Leucadia National (LUK) were Fairholme’s top holdings.
  • Warren Buffett (Berkshire Hathaway): Buffett initiated positions in Archer Daniels Midland (ADM) and Verisign (VRSN). Top holdings at the end of 2012 included Wells Fargo (WFC), Coca-Cola (KO), International Business Machines (IBM), American Express (AXP), and Procter & Gamble (PG). More recently, Berkshire announced the acquisition of Heinz (HNZ).
  • David Einhorn (Greenlight Capital): Einhorn established new positions in Google (GOOG), Vodaphone Group (VOD), and Western Digital (WDC), and sold positions in Huntington Ingalls Industries (HII), WellPoint (WLP), Humana (HUM), Starz (STRZA), and Genworth (GNW). Top holdings at the end of 2012 included Apple (AAPL), General Motors (GM), Cigna (CI), Marvell Technology Group (MRVL), and Computer Sciences (CSC).
  • Jeremy Grantham (GMO): Grantham’s most notable new positions included New Oriental Education & Tech Group (EDU), Compania de Minas Buenaventura SA (BVN), PSS World Medical (PSSI), Southern Copper (SCCO), and Warnaco Group (WRC). Notable sells included Mobile TeleSystems OJSC (MBT), Cencosud (CNCO), AMERIGROUP (AGP), Arcos Dorados Holding (ARCO), and Celgene (CELG). At the end of 2012, top holdings included Oracle (ORCL), Johnson & Johnson (JNJ), Google (GOOG), Coca-Cola (KO), and Microsoft (MSFT).
  • Seth Klarman (Baupost Group): Klarman added a new stake in American International Group (AIG) and eliminated positions in Hewlett-Packard (HPQ), Microsoft (MSFT), and Sycamore Networks (SCMR). Top holdings at the end of 2012 included BP PLC (BP), Via Sat (VSAT), Oracle (ORCL), News Corp (NWS), and Theravance (THRX).
  • Dan Loeb (Third Point): Besides disclosing a significant long position in Herbalife (HLF), Loeb established new positions in News Corp (NWSA), Tesoro (TSO), Morgan Stanley (MS), Equinix (EQIX), Agrium (AGU), and Dollar General (DG). Notable sells included Apple (AAPL), United Technologies (UTX), UnitedHealth Group (UNH), Autodesk (ADSK), and Cabot Oil & Gas (COG). At the end of 2012, top holdings included Yahoo! (YHOO), American International Group (AIG), Delphi Automotive (DLPH), Murphy Oil (MUR), and News Corp (NWSA).
  • Howard Marks (Oaktree Capital): Marks initiated new positions in Dynegy (DYN), NRG Energy (NRG), American International Group (AIG), TMS International (TMS), and First Citizens BancShares (FCNCA). Positions were eliminated in Alliance HealthCare Services (AIQ), Genon Energy (GEN), GT Advanced Technologies (GTAT), America Movil SAB de CV (AMX), and Rio Tinto (RIO). Top holdings at the end of 2012 included Charter Communications (CHTR), EXCO Resources (XCO) Delphi Automotive (DLPH), First BanCorp/Puerto Rico (FBP), and CIT Group (CIT).
  • Barry Rosenstein (Jana Partners): Rosenstein established new positions in Copart (CPRT), Verisign (VRSN), ADT (ADT), Tripadvisor (TRIP), Ryman Hospitality Properties (RHP), and Waste Management (WM). Positions were eliminated in Apple (AAPL), Google (GOOG), Motorola Solutions (MSI), (PCLN), and Rockwell Collins (COL). At the end of 2012, top holdings included Agrium (AGU), QEP Resources (QEP), Copart (CPRT), Coca-Cola Enterprises (CCE), and Liberty Interactive (LVNTA).

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

About the Author(s)
David Larrabee, CFA

David Larrabee, CFA, was director of member and corporate products at CFA Institute and served as the subject matter expert in portfolio management and equity investments. Previously, he spent two decades in the asset management industry as a portfolio manager and analyst. He holds a BA in economics from Colgate University and an MBA in finance from Fordham University. Topical Expertise: Equity Investments · Portfolio Management

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