Hedge funds continue to add in financials

Date: Tuesday, May 18, 2010
Author: Svea Herbst-Bayliss and Ros Krasny, Reuters

Some prominent hedge fund managers increased their stakes in financial stocks in the first quarter, showing confidence that the U.S. economy is back on a sustainable growth path.

Hedge fund manager John Paulson, who famously bet three years ago that U.S. housing prices would slide, put his toe back into the homebuilder market.

He bought 5 million shares in Beazer Homes USA Inc (BZH.N), one of the 10 largest single-family homebuilders in the country, a stake worth about $22.7 million.

Beazer, which traded at $73 per share in early 2006, was around $5 for much of the first quarter.

Last week, Paulson told investors he expects to see a strong economic recovery coupled with a rebound in housing prices.

Paulson raised his stake in Bank of America Corp (BAC.N) and Hartford Financial Services Group Inc (HIG.N), held large stakes in Citigroup Inc (C.N) and Wells Fargo & Co (WFC.N) and continued a love affair with gold.

The SPDR Gold Trust (GLD.P), an exchange traded fund, remained Paulson's largest holding. The fund also increased its stakes in two gold producers, Anglogold Ashanti Ltd (ANGJ.J) and Kinross Gold Corp (KGC.N) that are among its top 10 holdings.

Investors often see gold as a useful hedge against rising inflation.

Billionaire investor George Soros also held a large stake in the SPDR Gold Trust at the end of the quarter.

Investments in banking and the financial sector, while on the rise, were not a one-way street.

Soros, who reported a sizable 870 holdings in his filing for the end of the first quarter, up from 716 at the end of 2009, sold most of a large stake in Citigroup he acquired last year. He also trimmed his Bank of America stake by almost 36 percent and slashed a related bet in the Select SPDR financial sector ETF XLF.Pi. Soros added slightly to his stake in JP Morgan Chase & Co (JPM.N).

While Soros was selling, fund manager Philip Falcone, one of the world's most highly-paid stock pickers, acquired a new, 70-million share stake in Citi during the quarter for his Harbinger Capital Partners Master Fund I.

Large investors are required to report holdings of U.S.-listed equities at the end of each quarter, but not short positions or holdings of other securities such as bonds or over-the-counter derivatives.

Investors are also allowed to file some holdings in confidential reports if they are trading into or out of a position at the end of a quarter.

The reports, issued by the Securities and Exchange Commission, are studied by investors for tips on where the "smart money" is placing bets.