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San Francisco based hedge fund Passport Capital was founded by John Burbank in the year 2000. The fund’s investment process includes both macro themes as well as company specific focus, especially those that beaten down and out-of-favor among Wall Street analysts. Burbank graduated with a BA in English literature in 1987 from Duke University before receiving his MBA from Stanford Graduate School of Business in 1992.

Passport Capital has been overwhelmingly negative on the market for the past three quarters. At the end of March 31, nine of its top holdings were put options on individual stocks and indices. Its level of bearishness has come down though it still continues to hold significant put options.

During the June quarter, the fund built two new positions aggressively, one is a negative bet and the other is a bullish call. The fund bought aggressively shares of American Capital Agency Corp (NASDAQ:AGNC) during the quarter. The stock is its largest position at June 30 accounting for roughly 9% of its portfolio. Hedge fund Alyeska Investment Group run by Anand Parekh is also making bullish bets on the stock (see what else Alyeska Investment Group is buying). The stock has significantly outperformed the index since July losing a modest 1.7% compared to the 10.5% loss of S&P.

The other big new position for Passport Capital during the quarter is its short position on VMWare Inc (NYSE:VMW) via puts. At June 30, this position is the fund’s fifth largest holding accounting for roughly 3.7% of the portfolio. Burbank was on target again as the stock has lost 17% since the start of July, underperforming the S&P. Jim Simon’s Renaissance Technologies is on the other side of the trade on VMWare with a large holding, though during the second quarter, Renaissance Technologies cut its VMWare position by 6%. You can check out Renaissance Technologies’ positions here.

During the second quarter, John Burbank doubled down on his bearish bet on consumer discretionary sector. He doubled his put position on the Consumer Discretionary index (NYSEARCA:XLY). At June 30, this position is the fund’s second largest holding accounting for 8% of the portfolio. This is another position that has so far worked well for the fund as the XLY has dropped roughly 10.22% since the start of July.

The fund’s major holdings at the end of the June quarter are as follows:

CompanyName

Ticker

Value (x1000)

Activity

Return Since June

AMERICAN CAPITAL AGENCY

AGNC

233414

New

-1.68%

SECTOR SPDR TRUST Puts

XLY

214068

101%

-10.22%

INTL BUSINESS MACHS Puts

IBM

179347

-49%

-2.37%

CYTEC INDUSTRIES INC

CYT

114138

39%

-24.63%

VMWARE INC Puts

VMW

100230

New

-17.14%

THORATEC CORP

THOR

90504

30%

-3.14%

COSTCO WHOLESALE Puts

COST

80983

-50%

-4.31%

CREE RESEARCH Calls

CREE

67180

100%

-12.24%

SECTOR SPDR TRUST Puts

XLY

62460

-33%

-10.22%

C F INDUSTRIES HOLDINGS

CF

59671

-37%

24.14%

BARRICK GOLD Puts

ABX

56612

New

8.17%

STARWOOD PROPERTY Puts

STWD

56040

New

-13.70%

E M C CORP MA Puts

EMC

55100

New

-22.21%

NEWMONT MINING Call

NEM

53970

New

11.65%

SPDR SERIES TRUST Puts

XRT

45784

-4%

-12.44%

JUNIPER NETWORKS INC

JNPR

39624

New

-33.27%

MERCADOLIBRE INC

MELI

39535

New

-19.03%

LIBERTY MEDIA CORP

LINTA

37573

New

-10.91%

NEVSUN RESOURCES LTD

NSU

37476

267%

5.76%

ISHARES TRUST Puts

TLT

36571

-74%

13.70%

DOW CHEMICAL Puts

DOW

36000

-75%

-25.47%

ACORDA THERAPEUTICS

ACOR

35796

48%

-19.59%

VIVUS INC

VVUS

35096

116%

-8.23%

HUNTSMAN CORP

HUN

34709

67%

-35.33%

Other big changes during the quarter include a significant reduction of the bearish bet on IBM (NYSE:IBM). The fund cuts its put options of IBM by half during the quarter. The IBM put options are still significant and are the third largest position for the fund on June 30th and account for 6.6% of the portfolio. The stock has outperformed the index since the beginning of the third quarter with a modest 2.4% loss compared to the S&P’s 10.5% cut. Ken Griffin’s Citadel Investment Group also owns significant put options of IBM. Check out Citadel Investment Group’s holdings here.

One other interesting position during the quarter is the semiconductor device maker Cree Inc (NASDAQ:CREE). John Burbank is bullish on CREE and doubled his CREE call options during the quarter. The stock has lost 12.2% since the start of July, slightly underperforming the S&P. CREE is the 8th largest position for Passport Capital and account for 2.5% of the portfolio. This is another stock in which Passport Capital and hedge fund Citadel Investment Group are on the same side of the trade. Besides these two funds, hedge funds Coatue Management, and Israel Englander’s Millennium Management are also long CREE.

Because of the lack of information about the strike prices and the expiry dates of the options owned by the fund, it is not clear how the fund is stacking up against the S&P since the start of this quarter. But negative bets of the consumer discretionary sector as well as fresh short positions via puts on stocks like VMWare and EMC Corp (NYSE:EMC) suggest that the fund is anticipating further weakness in the market.

Source: Passport Capital's Favorite Stock Picks