Big Money: How Are Hedge Funds Positioning Themselves After Recent Market Swings?
Many investors buy when stocks are rising and sell when stocks are falling, but this is backwards. Stocks become more expensive as they rise, and they become cheaper as they fall. Therefore, stocks should become more attractive to investors during bear markets. Hedge fund managers often follow this ideology.
This last month, the stock market has seen a substantial correction, with the S&P 500 losing roughly over 11%. Many hedge fund managers are taking advantage of this bear market opportunity, and they're increasing their positions. Here are some of their trades:
Pershing Square Capital Management
Headed by Bill Ackman, the fund was valued at $5.72 billion as of March 31, 2011. The fund increased its position in Fortune Brands (FO) by over 20% in number of shares held. According to Form 4 filed with the SEC, Pershing Square bought 3,648,512 additional shares of FO on August 5th, 8th, and 9th and now owns 20,818,545 shares of the company.
Baupost Group
According to its latest 13G filed with the SEC, Seth Klarman's Baupost Group recently increased its ownership stake in PDL BioPharma (PDLI) by 40% as of July 31st. The fund is known to hold cash when it doesn't find attractive opportunities elsewhere, but apparently it sees opportunity with PDLI.
Appaloosa Management
David Tepper's hedge fund Appaloosa is closing significant positions while opening new ones. In the second quarter, the fund sold 41% of their position in Bank of America (NYS: BAC) , 5% of its position in Wells Fargo (NYS: WFC) , 6% of its position in Citigroup (NYS: C) , and 54% of its stake in Hewlett-Packard (NYS: HPQ) . The fund has also started new positions in Mosaic (NYS: MOS) , Western Refining (WNR), and Google (NAS: GOOG) .
Valinor Management
From a 13G filed with the SEC, we know that as of July 26, David Gallo's fund Valinor increased its position in Popular (BPOP) by 52% since the first quarter. The stock is down over 11% since July 26.
Eton Park Capital Management
As of July 29, Eton Park had increased their position in MSCI (MSCI) by 18.6%, increasing from 5.9 million shares at the end of Q1 to 7 million shares of MSCI, now being the fourth-largest shareholder of MSCI. Eric Mindich heads the New York-based fund.
Here is a list of the stocks mentioned in this article, along with pertinent data. Use this list as a starting-off point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)
1. Bank of America: Regional Banks Industry. Market cap of $72.99B. This is a risky stock that is significantly more volatile than the overall market (beta = 2.23). The stock is currently stuck in a downtrend, trading 14.44% below its SMA20, 23.16% below its SMA50, and 37.38% below its SMA200. It's been a rough couple of days for the stock, losing 12% over the last week.
2. Popular (NAS: BPOP) : Money Center Banks Industry. Market cap of $87.18B. This is a risky stock that is significantly more volatile than the overall market (beta = 2.52). The stock is currently stuck in a downtrend, trading 13.93% below its SMA20, 18.84% below its SMA50, and 28.95% below its SMA200. It's been a rough couple of days for the stock, losing 10.74% over the last week.
3. Citigroup: Foreign Regional Banks Industry. Market cap of $2.05B. The stock is currently stuck in a downtrend, trading 11.77% below its SMA20, 20.02% below its SMA50, and 30.11% below its SMA200. It's been a rough couple of days for the stock, losing 12.66% over the last week.
4. Fortune Brands (NYS: FO) : Home Furnishings & Fixtures Industry. Market cap of $8.68B. The stock has performed poorly over the last month, losing 10.36%.
5. Google: Internet Information Providers Industry. Market cap of $182.04B. The stock has gained 15.92% over the last year.
6. Hewlett-Packard: Application Software Industry. Market cap of $4.05B. The stock has gained 7.68% over the last year.
7. Mosaic: Specialty Chemicals Industry. Market cap of $28.92B. The stock has gained 26.85% over the last year.
8. MSCI (NAS: MSCI) : Diversified Computer Systems Industry. Market cap of $67.04B. Might be undervalued at current levels, with a PEG ratio at 0.91, and P/FCF ratio at 8.05. The stock is currently stuck in a downtrend, trading 5.59% below its SMA20, 7.41% below its SMA50, and 20.05% below its SMA200. The stock has lost 19.36% over the last year.
9. PDL BioPharma (NAS: PDLI) : Biotechnology Industry. Market cap of $795.41M. The stock is a short squeeze candidate, with a short float at 12.22% (equivalent to 6.35 days of average volume). The stock has gained 26.44% over the last year.
10. Wells Fargo & Company: Money Center Banks Industry. Market cap of $127.40B. Might be undervalued at current levels, with a PEG ratio at 0.72, and P/FCF ratio at 4.56. The stock is currently stuck in a downtrend, trading 7.85% below its SMA20, 8.53% below its SMA50, and 15.6% below its SMA200. The stock has performed poorly over the last month, losing 11.16%.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Alexander Crawford does not own any of the shares mentioned above. Data sourced from Finviz.
At the time this article was published The Motley Fool owns shares of Western Refining, Bank of America, Citigroup, Google, and Fortune Brands. The Fool owns shares of and has created a ratio put spread position on Wells Fargo. Motley Fool newsletter services have recommended buying shares of Fortune Brands and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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