Practical analysis for investment professionals
15 August 2013

13F Watch: Managers Add Financials and Trim Energy as Hedge Funds Remain under Fire

In the second quarter of 2013, institutional investors added to their equity holdings in the financial sector while reducing their exposure to energy stocks. Among the most widely held stocks, portfolio managers as a group added to positions in Microsoft (MSFT), General Motors (GM), Cisco (CSCO), and Intel (INTC), and trimmed positions in Pfizer (PFE), Oracle (ORCL), General Electric (GE), and AT&T (T).

Professional investors today have no shortage of media outlets through which they can tout their stock picks. And certain hedge fund managers, particularly those with an activist bent, seem to relish publicity when the exposure calls attention to a company they’ve targeted or a rival they’ve bested. Few, however, subscribe to the popular adage, widely attributed to showman P. T. Barnum and since embraced by Donald Trump, that there’s no such thing as bad publicity.

But when it comes to garnering the headlines for all the wrong reasons, things probably can’t get much worse for hedge fund managers. Since the end of June, SAC Capital has been hobbled by a criminal indictment, and Bloomberg Businessweek, with a not too subtle cover, proclaimed that “Hedge Funds Are for Suckers.” Even actor George Clooney weighed in, coming to the defense of Sony (SNE) as it resists pressure from Third Point Capital’s Dan Loeb. Clooney blasted Loeb as a carpetbagger and impugned the hedge fund industry as being without “conscience.”

With hedge funds now on pace to underperform the broad market for a fifth straight year, they’ve become an easy target. And yet, the investing public remains fixated on the moves of high-profile investors, as evidenced by the recent spike in the shares of Apple (AAPL) after Carl Icahn announced a new stake via Twitter:

Below we feed the public’s addiction by recapping some of the other portfolio changes made by Icahn, Loeb, and other prominent investors during the second quarter of 2013:

  • Bill Ackman (Pershing Square Capital): Ackman notably resigned from the board of JC Penney (JCP), and to the delight of Carl Icahn, remains underwater on his Herbalife (HLF) short position. The only new addition to Ackman’s long portfolio was a 9.8% stake in Air Products & Chemicals (APD). During the quarter, he eliminated his position in Mondelez International (MDLZ). At the end of June, Ackman’s top holdings included Canadian Pacific Railway (CP), General Growth Properties (GGP), Beam (BEAM), Air Products & Chemicals (APD), and Burger King Worldwide (BKW).
  • Bruce Berkowitz (Fairholme Funds): Berkowitz established new positions in Lincoln National (LNC) and Hartford Financial Services Group (HIG), and eliminated positions in MBIA (MBI), Canadian Natural Resources (CNQ), and Assured Guaranty (AGO). At the end of second quarter, American International Group (AIG), Bank of America (BAC), Sears Holdings (SHLD), St Joe (JOE), and Leucadia National (LUK) remained Fairholme’s top holdings.
  • Warren Buffett (Berkshire Hathaway): Buffett established new positions in Suncor Energy (SU) and DISH Network (DISH), and eliminated his position in Gannett (GCI). Top holdings at the end of the quarter remained Wells Fargo (WFC), Coca-Cola (KO), International Business Machines (IBM), American Express (AXP), and Procter & Gamble (PG). Berkshire’s filing also noted that “confidential information has been omitted from the public Form 13F report and filed separately with the U.S. Securities and Exchange Commission.” Buffett has once again taken advantage of the SEC’s “confidentiality waiver,” in all likelihood to delay disclosure of a new holding in his portfolio.
  • David Einhorn (Greenlight Capital): Einhorn’s largest new positions included ING US (VOYA), Liberty Global PLC (LBTYA), Rite Aid (RAD), and Amdocs (DOX). Notable sells from his portfolio included Virgin Media (VMED), Seagate Technology (STX), Microsoft (MSFT), CBS (CBS), and Hess (HES). Top holdings at the end of the quarter included Apple (AAPL), General Motors (GM), Marvell Technology Group (MRVL), Aetna (AET), and Cigna (CI).
  • Jeremy Grantham (GMO): GMO’s new positions included Santander Mexico Financial Group SAB de CV (BSMX), Lender Processing Services (LPS), Smithfield Foods (SFD), Mead Johnson Nutrition (MJN), and Unilever (UL). Notable sells included T-Mobile US (TMUS), Plains Exploration & Production (PXP), and Disney (DIS). At the end of the quarter, GMO’s top holdings included Johnson & Johnson (JNJ), Microsoft (MSFT), Google (GOOG), Coca-Cola (KO), and Pfizer (PFE).
  • Carl Icahn (Icahn Associates): Icahn, locked in a well-publicized battle for control of Dell (DELL), added significantly to his stake in the beleaguered PC maker during the quarter but was otherwise quiet on the trading front. Top holdings at the end of June included Icahn Enterprises (IEP), his holding company, CVR Energy (CVI), Dell (DELL), Forest Laboratories (FRX), and Chesapeake Energy (CHK).
  • Seth Klarman (Baupost Group): Klarman added new stakes in Micron Technology (MU), ChipMOS Technologies (IMOS), Yamana Gold (YRI), Kinross Gold (KGC), and Pretium Resources (PVG), and eliminated positions in Twenty-First Century Fox (FOX), Elan (ELN), and DIRECTV (DTV). Top holdings at the end of June included Via Sat (VSAT), BP (BP), Theravance (THRX), Micron Technology (MU), and American International Group (AIG).
  • Dan Loeb (Third Point): Loeb’s largest new positions included CF Industries Holdings (CF), Elan (ELN), Disney (DIS), Marathon Petroleum (MPC), and Williams (WMB). Notable sales from the portfolio included Virgin Media (VMED), Murphy Oil (MUR), Delphi Automotive (DLPH), AbbVie (ABBV), and Cheniere Energy (LNG). At the end of the quarter, top holdings included Yahoo! (YHOO), American International Group (AIG), Liberty Global (LBTYA), Thermo Fisher Scientific (TMO), and International Paper (IP).
  • Howard Marks (Oaktree Capital): Marks’s new positions included E*TRADE Financial (ETFC), Tata Motors (TTM), Constellium (CSTM), Baltic Trading (BALT), and Turkcell Iletisim Hizmetleri (TKC). Notable sells included CIT Group (CIT), First Citizens BancShares (FCNCA), Capital Bank Financial (CBF), Qihoo 360 Technology (QIHU), and Melco Crown Entertainment (MPEL). Top holdings at the end of the quarter included First BanCorp/Puerto Rico (FBP), EXCO Resources (XCO), Charter Communications (CHTR), Dynegy (DYN), and Delphi Automotive (DLPH).
  • Nelson Peltz (Trian Partners): Besides a newly established position in DuPont (DD), Peltz added Sothebys (BID) and GNC Holdings (GNC) to his portfolio during the quarter. Top holdings at the end of June included Mondelez (MDLZ), PepsiCo (PEP), Ingersoll-Rand (IR), Family Dollar Stores (FDO), and Wendy’s (WEN). Peltz has been urging PepsiCo to buy Modelez as a means of bolstering its own snack food business.
  • Barry Rosenstein (Jana Partners): Rosenstein’s largest new positions included Oil States International (OIS), Health Management Associates (HMA), URS (URS), Eastman Chemical (EMN), and Equinix (EQIX). Notable sells from the portfolio included BMC Software (BMC), Rockwood Holdings (ROC), Big Lots (BIG), Coca-Cola Enterprises (CCE), and Ryman Hospitality Properties (RHP). At the end of June, top holdings included Agrium (AGU), Oil States International (OIS), Ashland (ASH), Health Management Associates (HMA), and Groupon (GRPN).
  • David Tepper (Appaloosa Management): Tepper’s largest new positions included Chicago Bridge & Iron (CBI), Axiall (AXLL), Hertz Global Holdings (HTZ), Carnival (CCL), and Terex (TEX). Positions were eliminated in Two Harbors Investment (TWO), MFA Financial (MFA), and Silver Bay Realty Trust (SBY). At the end of the quarter, top holdings included Citigroup (C), Goodyear Tire & Rubber (GT), United Continental Holdings (UAL), Delta Air Lines (DAL), and Metlife (MET).

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.

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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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