John Paulson is famous for making a huge bet on the U.S housing bubble – and winning! His Paulson & Co. Inc. hedge funds placed complex – yet very profitable – credit derivative bets and made billions of dollars as a result. By July of 2011, Mr. Paulson’s fund was at its highest ever, with a market value of over $38 billion.
Since then however, things haven’t looked that good for the hedge fund guru. In 2016, the company’s merger arbitrage fund (a discipline that Mr. Paulson specializes in) lost nearly 18% of its value. Last year (2017) was no better, with the fund performing even worse – losing nearly 23% of its value. Today,
Obviously, this is taking a toll on the Guru’s personal fortune, with Assets Under Management (AUM) now reported to be around $9 billion – down over 76% from its 2011 high! Clearly, Paulson & Co. is hurting – bad – and that has resulted in significant staff cuts earlier in March this year.
While the hedge fund managed by Guru Paulson seems to be past its glory days, we can still learn a lot by taking a critical look at his portfolio.
The Portfolio Dissected
The U.S Securities and Exchange Commission (SEC) requires that companies disclose their major holdings, via a 13-F filing, no later than 45-days following the end of a quarter. The next 13-F from Paulson & Co. Inc. for the quarter ending March 31, 2018 will likely be filed in the next few weeks. However, we do get a glimpse of what Paulson likes (or dislikes!) based on the previous quarter’s (ended Dec 31, 2017) 13-F.
Based on the last 13-F filed with the SEC, it appears that the consolidated market value of Paulson’s portfolio declined by about 8% – to $5.12B (from its previous value of $5.57B), and it comprised of a total of 60 individual positions. On a percentage basis, the top three sector weightings in the portfolio appear to be Healthcare (38.98%), followed by Consumer Cyclicals (16.68%) and Financials (14.40).
If you wanted to build a portfolio to mimic Paulson’s top-10 holdings, you’d probably want to own names like SPDR Gold Trust (NYSEArca:GLD) – which is 16.54% of the top-10 holdings, Mylan N.V. (NASDAQ:MYL) – 14.64%, and healthcare player Shire PLC (NASDAQ:SHPG) – 14.62%. Other (notorious) holdings that make up the top-10 include Valeant Pharmaceuticals Int (NYSE:VRX) – 11.06% and Allergan PLC (NYSE:AGN) – 9.02%. Investors would do well to do some digging into the last two before establishing a position in them. For instance, both Paulson and fellow-Guru Bill Ackman have taken a serious beating on AGN!
Of the other sectors, only Telcos (9.20%) and Basic Materials (8.59%) rank in high single-digits of Paulson’s holdings, with Industrials (0.76%) and Consumer Non-Cyclicals (0.32%) not even amounting to a single percentage weight each. One takeaway would therefore be that these are sectors that Paulson didn’t care for too much.
Of the 60 positions constituting the Q4-2017 portfolio, there were a total of 11 (18%) net-new and 17 (28%) position enhancements, with Polson trimming 22 (37%) positions. Three prominent disposals from the portfolio included Teva Pharmaceutical (NYSE: TEVA), Warrants from Bank of America (NYSE: BAC) and Realogy Holdings (MUTF: RLGYX). Before we take away from these moves that pharmaceuticals are out of favor with Paulson, lets remember that he has also increased his stake in Horizon Pharmaceuticals (NASDAQ: HZNP), while maintaining his positions in pharma players like Endo International plc (NASDAQ: ENDP) and Valeant Pharmaceuticals Int (NYSE:VRX). So, health care seems to be in favor with this Guru.
A quick view of Paulson’s top-10 holdings, as of intra-day on May 2nd, 2018, would indicate a mixed-bag of performance over the last 150-day period. For instance, VRX, GLD, SHPG and VST are clear winners. TMUS on the other hand hasn’t moved much between Oct last year ($61.52) and today (high 50s). However, names like AGN haven’t fared so well. Perhaps you might take a cue from Paulson’s trimming of his AGN stake this past quarter?
The author does not own any of the stocks mentioned in the article
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