Soros's Fund's Recent Major Transactions: Gold and Oil Uncertainty, Economic Growth

 |  Includes: AGRO, CVS, DAL, MSI, NG, PXP, VC
by: Zvi Bar
Soros Fund Management LLC is well regarded as one of the most successful and high-profile hedge funds, largely due to its performance and the position of political power that George Soros appears to hold. George Soros’ wealth was recently estimated at about $14.2 Billion, making him Forbes’ 35th wealthiest person in the world and 14th wealthiest in the United States. His fund is ranked as the sixth-largest hedge fund, with approximately $28 Billion in assets under management.
Four times a year, the hedge fund must file a 13F with the SEC, delineating the main equity transactions made in the prior quarter (just equities, not debt or private placements). Last week, Soros Fund Management filed its 13F, so we now know what positions the fund took in the first quarter of 2011, and from which it departed. This article will focus on those transactions with a market value near or above $100 million.
The Major 13F Transactions at Soros Fund Management
Soros Fund Management entered several new positions in the first quarter of 2011, but the largest by far was in Adecoagro S.A. (NYSE:AGRO), an agricultural and farm products company that operates in South America. AGRO had its United States IPO within the first quarter of 2011. Soros’s hedge fund owns 27,158,693 shares of AGRO, valued at over $360 million at the time of filing, though down over 10% since then. This is now the hedge fund’s largest equity position, indicating the fund has a relatively high level of confidence in the future of this company and/or South American agriculture generally. Nonetheless, it is believed that Soros invested in AGRO when it was private, so the price the fund paid is unclear and likely below the IPO value.
Soros’ second-largest new equity position is in Visteon Corp. (NYSE:VC), a Michigan-based electronic auto parts supplier. Visteon is another recent IPO, or re-IPO, following its emergence from bankruptcy protection. Soros Fund Management obtained about 2.1 million shares of VC in the first quarter, valued at slightly over $133 million as of March 31. With this position, the fund owns roughly 4% of the company.
Soros’ fund also made some dramatic increases to existing equity positions, such as to Motorola Solutions, Inc. (NYSE:MSI). Motorola recently divided itself into a two companies, where MSI sells communications equipment and Motorola Mobility (NYSE:MMI) is the mobile device maker. The fund added over 3.8 million shares of MSI for a total position of 4.48 million shares. As of March 31, this was approximately a $200 million position where about $176.8 million was new purchases in the first quarter of 2011.
Soros Fund Management also dramatically increased its position in Wells Fargo & Co. (NYSE:WFC), the large bank. The fund purchased about 2.9 million more shares, valued at $93.5 million at the end of the quarter, for a total position of about 3.5 million shares. Additionally, it picked up around 2.6 million shares of CVS Caremark Corporation (NYSE:CVS), valued at about $90.4 million at the end of the quarter, for a total position of about 3.5 million shares. Many have theorized that CVS may end up splitting its business, like Motorola did, either into separate drugstore and medical benefits businesses, or sell the medical benefits business to a competing entity to end anticompetitive concerns.
One major position that Soros Fund Management did completely exit from was Plains Exploration & Production Company (NYSE:PXP). The fund sold about 4.7 million shares of the independent oil & gas company, which had a market value of slightly over $150 million at the end of the first quarter of 2011.
The fund did make some notable position reductions. For example, the fund sold over 4.6 million shares in the SPDR Gold ETF (NYSEARCA:GLD), with a value of about $648 million at the end of the quarter. Now the hedge fund has a mere 49,400 shares in GLD, a small fraction of its prior, substantial position. Note that while Soros’ fund may be exiting GLD, John Paulson’s Paulson & Co.’s recent transactions show that it is letting that fund’s position ride.
Beyond selling GLD, the fund also substantially reduced its position in NovaGold Resources Inc. (NYSEMKT:NG), a Canadian gold exploration and mining company. The fund sold approximately 9.4 million shares of NG, valued at over $138 million, at the end of the first quarter. The fund did maintain a position of over 3.4 million shares in the company, though, or about 25% of its original position.
Soros’ fund also sold almost 13 million shares of Delta Air Lines Inc. (NYSE:DAL), a United States-based major airline. At the end of the first quarter, these shares had a value of about $168 million. The hedge fund maintained about 1.7 million shares of the airline. It is possible that the fund has reduced its exposure to the airline on the belief that higher oil prices and issues around the world will have the effect of lowering rates of air-travel while increasing airline costs.
It cannot be denied that Soros Fund Management has reduced its exposure to equity positions in gold and gold resources, including virtually eliminating its formerly largest position in GLD. Further, the hedge fund has eliminated its exposure to PXP, an American oil company. These transactions appear to indicate that the fund believes that these two commodities have either had their run or that a correction is due. Furthermore, the decision to reduce exposure to DAL indicates that DAL may have been a hedge to falling commodities, particularly oil prices.
The fund’s substantial position in AGRO indicates that the fund believes that agricultural commodities have room to appreciate and/or that South American economies and currencies will outperform others. This is certainly a vote of confidence for agricultural commodities, but since Soros' fund had a relationship with this company prior to its IPO, the assuredness that the company is now a good value is unclear.
The fund’s large new positions in VC and MSI appear to indicate that Soros Fund Management believes these businesses will grow and that there will be continued demand for their products. VC’s success appears levered to the success of the US car industry, while MSI’s success is now de-tethered to Motorola’s mobile phones.
Generally speaking, the new major transactions made by Soros Fund Management indicate that the hedge fund is expecting continued economic growth and spending on infrastructure high-tech vehicle components. The positions taken in WFC and CVS also indicate a belief in a stable and growing economy. This is a fairly aggressive and upbeat outlook when compared to the positions taken by Paulson’s hedge fund in the first quarter of 2011. Opinions will certainly differ, and it will be interesting to see which predictions are more consistent with future events.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.