U.S. hedge funds sour on Apple; favor dollar stores


Date: Friday, February 15, 2013
Author: Svea Herbst-Bayliss and Katya Wachtel, Reuters

Hedge fund heavyweights from Leon Cooperman's Omega Advisors to Barry Rosenstein's Jana Partners threw in the towel on Apple Inc in the fourth quarter, while other managers found discount retailers Dollar General Corp and Dollar Tree Inc attractive, regulatory filings showed on Thursday.

Apple has been the topic du jour since last week, when prominent hedge fund manager David Einhorn sued the company to get it to deploy its $137 billion cash pile more effectively and halt a 35 percent drop in its share price from a record high in September.

Cooperman, whose hedge fund had $7 billion in assets as of last November, sold his entire stake of 266,404 Apple shares; Rosenstein sold all of the 143,000 shares he held.

However, Einhorn's Greenlight Capital, holder of roughly 1.3 million Apple shares, found some company: David Tepper's Appaloosa Management increased its Apple stake to 912,661 shares and billionaire George Soros added about 100,000 Apple shares during the fourth quarter.

Herbalife, which has been under scrutiny after hedge fund manager Bill Ackman called the nutritional supplements company an unsustainable pyramid scheme, drew the attention of the market late Thursday. Billionaire investor Carl Icahn said he now owns 14 million shares in the company, taking his ownership to nearly 13 percent of Herbalife. The news sent shares up 17 percent in after-hours trading.

Consumer- and retail-related stocks appear to have been the flavor of the fourth quarter.

Patrick McCormack's $2 billion Tiger Consumer Management LLC took a new, 2.15 million-share stake in discount retailer Dollar Tree, while Farallon Capital Management LLC bought 4.3 million shares of Dollar General.

Maverick Capital Management also increased its position in Family Dollar Stores, to 4.2 million shares from 2.8 million shares, during the fourth quarter. Family Dollar shares were losers in January, down 11.4 percent.

The quarterly disclosures of hedge fund stock holdings - in so-called 13F filings with the U.S. Securities and Exchange Commission - are always intriguing for investors trying to divine a pattern in what savvy traders are selling and buying.

The filings also offer insight into how managers positioned themselves at year end to benefit from the big run-up in stock prices in early 2013.

But relying on the filings to develop an investment strategy comes with some peril because the disclosures are backward looking and come out 45 days after the end of each quarter.

Still, the filings can offer a glimpse into what hedge fund managers saw as opportunities to make money on the long side. The filings don't disclose short positions, bets that a stock will fall in price. And there's also little disclosure on bonds and other securities that don't trade on exchanges.

Here then are some of the hot stocks and sectors in which hedge fund managers either took new positions or exited from in the fourth quarter.

CONSUMER AND RETAIL

Farallon, founded by recently retired billionaire Thomas Steyer, took a new stake in retailer Sally Beauty Holdings of 4.7 million shares, and Jana initiated a new position in retailer Fifth & Pacific Companies (formerly Liz Claiborne Inc) of 3.3 million shares.

Tiger Consumer Management cut its stake in luxury retailer Michael Kors Holdings Ltd by 394,269 shares to 1.6 million.

Eton Park Capital Management, a $12 billion hedge fund run by former Goldman Sachs trader Eric Mindich, initiated a new position in Best Buy Co of 1.6 million shares during the fourth quarter. Best Buy was one of the best performing stocks in January, up over 37 percent.

Tiger Global Management, a roughly $6 billion fund run by Chase Coleman and Feroz Dewann, loaded up on Amazon Inc. Tiger Global now owns 1.23 million shares, up from 480,000.

TECHNOLOGY

Tiger Global trimmed its stake in Apple, to 1.05 million shares from 1.3 million, and sold all of its 698,000 shares of Google Inc and its 11.7 million-share stake in Facebook Inc. Tiger slashed its Yahoo Inc position to 14 million shares from 25 million.

JAT Capital, founded and run by John A. Thaler, slashed its stake in Facebook to about 530,000 shares, significantly down from 6.1 million. But JAT opened a new stake in Yahoo of 2.8 million shares. It also re-entered LinkedIn with about 340,000 shares, after dissolving a stake some time in the third quarter.

Tiger Global has been a darling of the investment community for delivering a string of strong returns at a time many hedge funds were up only low single digits. Industry legend Julian Robertson gave the fund its start.

SOLAR

Tiger Global also opened a new 1 million-share stake in First Solar, which was one of January's biggest losers, down 8.75 percent.

But JAT Capital slashed its stake in First Solar during the fourth quarter to about 790,000 shares, from about 1.6 million shares.

FINANCIALS

Activist investor Daniel Loeb's Third Point LLC accumulated a $148.2 million stake in Morgan Stanley, buying 7.8 million shares of the securities company. The disclosure is the first public acknowledgement of the size of the hedge fund's position, which was mentioned in an investor letter last month.

Greenlight's Einhorn unloaded his entire 658,700 stake in Genworth Financial Inc during the fourth quarter. John Paulson's Paulson & Co and credit-focused trader Boaz Weinstein of Saba Capital Management may have had better timing.

Paulson took a 3.9 million-share position and Saba added roughly 2.3 million shares in Genworth during the fourth quarter. The stock was one of January's best performers with a gain of 22 percent.

Eton Park sold its entire 148,000-share stake in U.S. lender CIT Group Inc and Bruce Berkowitz's Fairholme Funds cut a its exposure to 3.2 million shares from 11.1 million shares.

CIT held preliminary talks over the past year and a half to sell itself to banks, including Toronto-Dominion Bank and Wells Fargo & Co, but nothing came of the conversations, according to three people familiar with the specialty finance company.