Passport Capital Hedges With ETFs and Options

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 |  Includes: ABX, AKS, AMAG, ARO, ATVI, BSX, BZH, CEPH, CF, CKR, CVS, DFS, DLTR, DPS, EEM, EJ, ESV, GILD, GLNG, HK, HOV, ILMN, IPXL, JNS, KCG, LVS, MCK, MDT, MNTA, MOS, MYGN, NOV, NUVA, NWSA, OEF, ONXX, OVTI, PDA, PDE, PFE, PNC, PWRD, RDC, SAFM, SCO, SFL, SPY, SRS, STAR-OLD, SYK, TEVA, TEX, TSO, TZA, UNH, WEN, WFC, WFT, WMGI, X, XLB
by: Market Folly

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund 13F filings.)

Next up is John Burbank's hedge fund firm Passport Capital. Burbank founded the San Francisco hedge fund in 2000 and his fund uses sector specific and macroeconomic analysis to select its investments. Once Passport has identified potential themes, it will drill down to find specific companies that can benefit.

Burbank has over a decade of experience in markets, having previously worked as a consultant and as a director of research at ValueVest Management. His educational background includes an undergraduate degree from Duke University and an MBA from Stanford University. Passport previously had a track record of gaining 27% annually. However, like many other funds, Passport had a rough 2008.

Previously, we've detailed a lot of investment resources out of Passport including:

The positions listed below were Passport's long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. All holdings are common stock unless otherwise denoted.

Brand New Positions
iShares S&P 500 (NYSEARCA:SPY) Puts
iShares Emerging Markets (NYSEARCA:EEM) Puts
CF Industries (NYSE:CF) Calls
US Steel (NYSE:X) Calls
Dr Pepper Snapple (NYSE:DPS) Calls
Barrick Gold (NYSE:ABX)
CVS Caremark (NYSE:CVS)
Materials (NYSEARCA:XLB) Puts
Terex (NYSE:TEX) Calls
Barrick Gold (ABX) Calls
UnitedHealth (NYSE:UNH)
Illumina (NASDAQ:ILMN)
Ultrashort Crude Oil (NYSEARCA:SCO)
News Corp (NASDAQ:NWSA)
Boston Scientific (NYSE:BSX)
Small Cap Bear 3x (NYSEARCA:TZA)

All the rest of Passport's new positions were each less than 0.5% of reported assets: Ensco (NYSE:ESV), Tesoro (NYSE:TSO) Puts, Knight Capital (NITE), Rowan (NYSE:RDC), Nuvasive (NASDAQ:NUVA), CF Industries (CF), Medtronic (NYSE:MDT), Dollar Tree (NASDAQ:DLTR), Knight Capital Group (NITE) Calls, Mosaic (NYSE:MOS) Calls, National Oilwell Varco (NYSE:NOV), & Omnivision (NASDAQ:OVTI)

Increased Positions
Proshares Ultrashort Real Estate (NYSEARCA:SRS): Increased by 23,451% (was previously a tiny position)
Perfect World (NASDAQ:PWRD): Increased by 971%
iShares S&P 100 (NYSEARCA:OEF) Puts: Increased by 356%
Onyx Pharma (NASDAQ:ONXX) Calls: Increased by 100%
Janus Capital (NYSE:JNS) Puts: Increased by 100%
US Steel (X): Increased by 78.9%
Discover Financial (NYSE:DFS) Puts: Increased by 20%
Dr Pepper Snapple (DPS): Increased by 17%


Reduced Positions
Wendys Arbys (NASDAQ:WEN): Reduced by 47.4%
Mckesson (NYSE:MCK): Reduced by 5.23%
Teva Pharma (NYSE:TEVA): Reduced by 2.3%


Removed Positions (Sold out completely):
Materials (XLB) Puts
PNC Financial (NYSE:PNC) Puts
Wells Fargo (NYSE:WFC) Puts
Covidien (COV)
Cephalon (NASDAQ:CEPH)
Pfizer (NYSE:PFE)
Las Vegas Sands (NYSE:LVS) Calls
Golar LNG (NASDAQ:GLNG)
Onyx Pharma (ONXX)
Myriad Genetics (NASDAQ:MYGN)
Gilead Sciences (NASDAQ:GILD)
Wright Medical (NASDAQ:WMGI)
Amag Pharma (NASDAQ:AMAG)

The rest of Passport's sold positions were each less than 0.5% of the fund's reported assets: Stryker (NYSE:SYK), Starent Networks (STAR-OLD), Activision Blizzard (NASDAQ:ATVI), Momenta (NASDAQ:MNTA), Petrohawk (NYSE:HK), Beazer Homes (NYSE:BZH), Aeropostale (NYSE:ARO), Hovnanian (NYSE:HOV), Sanderson Farms (NASDAQ:SAFM), BRF Brasil Foods (PDA), Pride (NYSE:PDE), Impax Lab (NASDAQ:IPXL), Weatherford International (NYSE:WFT), EHouse (NYSE:EJ), CKE Restaurants (CKR), & Ship Finance (NYSE:SFL)


Top 15 Holdings by percentage of assets reported on 13F filing

  1. SPDR S&P 500 Puts: 15.79%
  2. iShares S&P 100 Puts: 14.4%
  3. iShares Emerging Markets Puts: 12.23%
  4. CF Industries Calls: 8.21%
  5. US Steel Calls: 5.77%
  6. Dr Pepper Snapple: 4.58%
  7. Onyx Pharma Calls: 2.64%
  8. US Steel: 2.64%
  9. Dr Pepper Snapple Calls: 2.55%
  10. Barrick Gold: 1.85%
  11. Perfect World: 1.62%
  12. Mckesson: 1.46%
  13. AK Steel (NYSE:AKS): 1.29%
  14. Wendys Arbys: 1.16%
  15. CVS Caremark: 1.15%


It appears that John Burbank's hedge fund Passport Capital utilizes exchange traded funds (ETFs) and options for hedging purposes as its top three holdings are all put positions on indexes. This falls directly in line with Goldman Sachs' recent research where its analysts found hedge funds mainly use ETFs as a hedging tool. Additionally, you'll note that Passport uses options to express a lot of its position views as well. Its largest actual equity position is in Dr. Pepper Snapple and the fund additionally owns calls on the name as well.

Assets reported on the 13F filing were $2.2 billion this quarter compared to $1.2 billion last quarter, over a 70% increase in exposure which is nothing to sneeze at. (Remember that these filings are not representative of the hedge fund's entire base of AUM). So, the vast majority of its portfolio activity was via completely selling out of some names and starting brand new positions in equities and options.

Passport is definitely focused on the global growth and natural resources themes with positions in steel companies, agriculture plays, and gold plays. Keep in mind that Passport also has many commodities positions that won't show up on the 13F filing, including a large physical gold position. (It has previously outlined its rationale for owning physical gold). Overall, we track Passport to see which sectors it is flocking to and what kind of exposure it has.

We'll be tracking 40+ prominent funds in our fourth quarter 2009 hedge fund portfolio tracking series. We've already covered Seth Klarman's Baupost Group, Mohnish Pabrai's Investment Fund, Carl Icahn's hedge fund Icahn Partners, David Einhorn's Greenlight Capital, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, David Tepper's Appaloosa Management, Warren Buffett's portfolio, John Paulson's hedge fund Paulson & Co, Lee Ainslie's Maverick Capital, Dan Loeb's Third Point, Eddie Lampert's RBS Partners, David Ott's Viking Global, and Chris Shumway's hedge fund Shumway Capital Partners, Chase Coleman's Tiger Global, Philip Falcone's Harbinger Capital Partners, Roberto Mignone's Bridger Management, and Thomas Steyer's Farallon Capital. Check back daily for our new updates.


Original article