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A 13-F filed earlier this month with the SEC reveals only five long positions in Hayman Capital's portfolio. Hayman is run by Kyle Bass, the legendary hedge fund manager who made billions betting against subprime mortgages. Bass also made waves in 2011 when the University of Texas endowment fund initiated a 5% position in gold at his insistence. Hayman's portfolio has been closely watched since it was up 216.6% in 2007. Here are its five long positions:

Mechanical Warfare

Hayman maintains a 6.36% position in API Technologies (ATNY), which manufactures communications equipment and other products for the defense, aerospace, medical, and communications industry. Perhaps the most exciting product it makes is software for Unmanned Aerial Vehicles, which is a fancy name for drones. Purchasers of its drone systems include Boeing (BA), Northrop Grumman (NOC), and General Dynamics (GD). Drones are already used to fight wars in the Middle East, but domestic local law enforcement is also starting to adopt the devices for use in surveillance of U.S. citizens. Hayman's thesis may revolve around growth of the drone industry.

Video Games

Electronic Arts (EA) is an 11.82% position for Hayman. The video game publisher's struggles during the Great Recession turned a lot of investors away from the stock, but with the fundamentals starting to turn around, the stock could be cheap. Hayman is probably bullish on the video game publishing industry, in addition to EA's ability to continue to churn out top titles.

Luxury Hotels

Hyatt Hotels (H) is Hayman's newest addition and makes up 15.92% of the portfolio. It trades at nearly 60x free cash flow and 1.44x sales. The company has struggled through a sharp decline in earnings since the real estate bubble burst, though sales and earnings have rebounded over the past several quarters. The stock trades at a small premium to book, so Hayman's thesis probably hinges on the value of Hyatt's real estate in addition to a broader rebound in real estate prices.

Mattresses

Hayman owns Sealy (ZZ) common stock in addition to a larger position in Sealy senior secured notes. As with most Hayman investments, Sealy has been struggling as of late. Its earnings fell off sharply in 2008 and haven't recovered. However, rival mattress-manufacturer Tempur-Pedic made a buyout offer at the end of September for $2.20 per Sealy share and the deal is expected to close at the end of November.

Theme Parks

Six Flags Entertainment (SIX) is Hayman's largest position at 41.7%. Like Hyatt Hotels, Six Flags owns a lot of real estate. It has also turned around its theme park operations after going through bankruptcy proceedings in the latter half of the last decade. Hayman originally purchased a stake in Q3 2010 and the stock price has shot up nearly threefold since the purchase. However, Hayman may still be bullish on the company due to a bullish stance on real estate. On the other hand, the hedge fund may soon wind down its position in the company since it appears to be generously valued.

Conclusion

Perhaps the most notable aspect of Hayman's most recent 13-F is that the number of long positions have been cut in half since the quarter-ago filing. Hayman isn't the only hedge fund raising cash: Seth Klarman's Baupost Group also reduced its equity holdings by more than half. While you can't be certain that a 13-F position isn't a hedge for a short, you can be certain that smart hedgies raising cash is a sign that they're running out of long ideas. Perhaps stocks are about to get a lot cheaper.

Source: Hedge Fund Legend Kyle Bass Loves These Stocks