"Activist Investors", the relatively new classification for corporate agitators, want you to believe that their intellectual tactics/ strategies improve both corporate governance and shareholder returns. That may be true but they also seem to be involved in another, less savory, tactic, that is, inflating their company “ownership” claims with extremely large derivatives positions as outlined in SEC disclosure filings.
Just like 13F clones end up getting burned more often than not, so too unfortunately for the Chinese copycats, an endorsement from the equity market’s savior has done nothing to ensure outsized returns. In fact, as Bloomberg adds, it was just the opposite - the stock picks have trailed the broader market. The 46 companies that reported the agency as a top 10 shareholder in the past two months lost an average 29 percent since the announcement, versus a 21 percent drop for the Shanghai Composite Index.
"The 17-year river [of reserve currency buildup and QE around the world] is no longer flowing," warns Appaloosa's David Tepper, and "turbulence" is now the norm. VIX 22 is too low - "expect surging volatility", 18x PE is too high - "margins are set to drop - I have problems with earnings growth and problems with multiples"
Simply put - "Flat stocks is not a bad place to be...unless central banks are on our side again, then every rally should be sold."
How did Tepper do in Q2? In a word: lousy. In another word: the man who recently was on CNBC pitching a 20x P/E multiple as the new normal, may have just called the market top.
If the central banks' intention was to convert "hedge" funds into what are essentially plain vanilla long-onlies (understandable in a world in which being long the most shorted names generates outsized returns year after year), they have succeeded.
Surprisingly, the flow of crude oil is still accelerating, much like the money going into crude oil funds. Three of the largest crude oil funds include USO, OIL, and UCO. UCO is unique due to the fact that it’s an exchange-traded fund that uses leverage, mostly in the form of derivatives, to correspond to twice (200%) the daily performance of its underlying benchmark, the Bloomberg WTI Crude Oil Sub-index. Many large financial institutions have large stakes in UCO and thus are still betting that crude oil can make a comeback beginning in 2015.
Based on quarterly 13F filings and estimated short positions of the equity holdings of 909 funds, BofAML calculates that hedge funds raised net exposure to a new record high of $683bn at the beginning of 3Q 2014, while reducing cash holdings to a record low of 3.5%. Gross exposure rose to 190%, or 207% if ETF positioning is considered, which is back to the 2007 peak... In other words, hedge funds have never been more bullishly positioned (just as large speculators had never been so bearishly positioned into last week's bond-short capitulation).
Back in February we observed, with some surprise, when Soros Fund Management, the investment vehicle of the famous Hungarian billionaire investor revealed in its Q4 13F that the firm had taken its bearish S&P 500 ETF - aka SPY - put exposure to a then record $1.3 billion notional, prompting us and many others to ask if Soros was preparing for a market crash. Fast forward to today when following the latest 13F disclosure from the same fund, we note, with double the surprise that a quarter after the same ETF put was lowered to "only" $299 million notional, Soros has once again increased his total SPY Put to a new record high of $2.2 billion, or nearly double the previous all time high, and a whopping 17% of his total AUM.
Curious what (long) positions hedge funds bought, sold, initiated or liquidated in the second quarter? Then the following summary, courtesy of RanSquawk is for you. And while these 13F reports are far less relevant than they used to be when central-planning wasn't the rule of the land, keep a close eye on these most frequently mentioned stocks: AAPL, DG, AAL, MNK, FB, PCLN, GM, VZ, AGN, AIG, DTV, CMCSA, WMB, QCOM, APC, and CBS.
For everyone curious how the market's favorite "balls to the wall" barometer did in the second quarter (which ended 45 days ago), here is the full breakdown.
Now, for the first time, we have empirical proof that hedge funds are indeed on the verge of extinction. In its hedge fund quarterly note (which it clearly ripped off from Goldman), Bank of America has concluded what we said in the beginning of the decade: "Hedge Funds are less attractive post the financial crisis with lower alpha and less diversification benefits." Or, in other words, hedge funds (for the most part: this excludes those extortionists also known as activists who successfully bully management teams into levering up in order to buyback record amounts of stock, in the process burying their companies and employers when the next downturn arrives) no longer provide a service commensurate to their astronomical fees.
With two of Tepper's top six positions being new, and quite massive, calls in either the SPY or QQQ, we would be nervous too...
A curious finding emerged in the latest 13F by Soros Fund Management, the family office investment vehicle managing the personal wealth of George Soros. Actually, two curious findings: the first was that the disclosed Assets Under Management as of December 31, 2013 rose to a record $11.8 billion (this excludes netting and margin, and whatever one-time positions Soros may have gotten an SEC exemption to not disclose: for a recent instance of this, see Greenlight Capital's Micron fiasco, and the subsequent lawsuit of Seeking Alpha which led to the breach of David Einhorn's holdings confidentiality). The second one is that the "Soros put", a legacy hedge position that the 83-year old has been rolling over every quarter since 2010, just rose to a record $1.3 billion or the notional equivalent of some 7.09 million SPY-equivalent shares. Since this was an increase of 154% Q/Q this has some people concerned that the author of 'reflexivity' and the founder of "open societies" may be anticipating some major market downside.
On October 15, well into the fourth quarter, David Tepper appeared on CNBC for his semi-annual stock pumpfest, most memorable for his suggestion that a 20x P/E multiple on the S&P was perfectly acceptable. Which would suggest Tepper was very bullish on risk. Which would suggest buying more stocks, not selling. Yet selling is precisely what he did between September 30 and December 31 for the vast majority of his top holdings according to his just released 13F. So what did he sell or liquidate?
Here is a summary of the key stock additions, sales, initiations and liquidations conducted by the most prominent US hedge funds in the third quarter.