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
Appaloosa Management was founded by David Tepper and is known for investing in the debt of companies in distress. Tepper's history includes investing in companies such as Enron and WorldCom. He made billions on bank stocks in 2009 after they had imploded, betting that they wouldn't fail. More recently, he has invested in many housing-related companies.
Why should you look at Appaloosa Management's moves? According to AlphaClone's back-test simulation, anyone who invested in Appaloosa Management's 10 largest long positions at the time they were disclosed publicly each quarter would have returned a gargantuan 581% since 2000, versus no gain at all for the S&P 500 (including dividends) as of Sept. 13. (Note that this data reflects the holdings of the overall Appaloosa Management company, and not necessarily any one particular fund.)
The total market value of Appaloosa Management's disclosed equity holdings as of June 30, 2011 -- the latest quarter for which data is available -- was $3.95 billion across 58 holdings. The fund company's 10 largest positions and associated changes in number of shares held as of June 30, 2011 were:
Citigroup (NYS: C) -- reduced 6.0%.*
Pfizer (NYS: PFE) -- reduced 6.0%.
Goodyear Tire (NYS: GT) -- reduced 8.2%.
Valero Energy (NYS: VLO) -- increased 202.6%.
Macy's (NYS: M) -- reduced 6.0%.
CVR Energy (NYS: CVI) -- increased 371.3%.
Mosaic (NYS: MOS) -- New.
International Paper (NYS: IP) -- reduced 11.2%.
United Continental Holdings (NYS: UAL) -- reduced 3.0%.
CF Industries (NYS: CF) -- reduced 6.7%.
*After adjusting for 1-for-10 reverse split during the quarter.
During the quarter, Appaloosa Management also increased its position in Micron Technology (NAS: MU) and HollyFrontier, among others. Among the roughly 40 stocks that it reduced its exposure to were Applied Materials and Hewlett-Packard. The fund family also sold out of several stocks entirely, including the Spain-based banking giant Banco Santander (NYS: STD) . Micron posted strong gains that impressed investors in the first quarter, and HollyFrontier was on a tear leading up to the completion of the merger of Holly with Frontier Oil. Hewlett-Packard was looking shaky because of weakness in the PC arena, a deteriorating cash position, and supplier issues following Japan's earthquake and tsunami.
Selected Q2 2011 commentary
Appaloosa Management has more than 18% of its assets in the financial sector, down significantly from more than 43% a few quarters ago. Its 17% stake in technology companies has held steady, while it has built up a 15% position in energy and a 12% stake in basic materials stocks.
Here's where the firm is winning and losing currently and making new bets:
Macy's was a big winner for Appaloosa in the quarter, rising 21%. It has been posting strong numbers as it differentiates itself from discounters by focusing on higher-end brands. The company has a two-star rating (out of five) at Motley Fool CAPS.
Valero Energy shed 14% during the quarter. Having recently impressed many investors by turning itself around, it nevertheless posted some weak retail operating earnings and lost a little market confidence. Valero has a five-star rating in Motley Fool CAPS.
Mosaic was the biggest new bet in the quarter, as it fell 14%. Appaloosa also started new positions in Western Refining and Google, among others.
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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At the time thisarticle was published Longtime Fool contributor Selena Maranjianowns shares of Google, but she holds no other position in any company mentioned. Check out herholdings and a short bio. The Motley Fool owns shares of Citigroup, Western Refining, Google, and Applied Materials.Motley Fool newsletter serviceshave recommended buying shares of Google and Pfizer. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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