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Richard Perry is one of the hedge fund superstars. He co-founded Perry Capital in 1988, which has a record of generating positive returns in all years since then except for 2008. Perry is known as an event-driven investor. He looks for companies with restructuring opportunities such as spinoffs, or mergers and acquisitions.

Perry recently decided to hedge his long exposure by building a huge put position in Russell 2000 ETF. Here are the top 20 positions in Perry Capital’s 13F portfolio as of September 30, 2011:

Company Name

Ticker

Value

Activity

ISHARES TRUST Put

(IWM)

1038162

New

IRON MOUNTAIN

(IRM)

142448

-29%

ANADARKO PETROLEUM

(APC)

123578

145%

MOTOROLA MOB WI

(MMI)

104380

New

BP PLC Call

(BP)

90175

New

YAHOO INC Call

(YHOO)

84683

12%

ISHARES TRUST Call

(IWM)

82304

New

BP PLC

(BP)

82095

New

UNIVERSAL AMERICAN SPIN

(UAM)

77404

0%

YAHOO INC

(YHOO)

67167

-59%

SOUTHERN UNION CO NEW

(SUG)

61593

3%

ROYAL BANK SCOTLAND Cl 1

(RBS)

51263

7%

ROYAL BANK SCOTLAND Cl 2

(RBS)

44291

0%

ROYAL BANK SCOTLAND Cl 3

(RBS)

41446

13%

GENERAL MOTORS CO

(GM)

40360

-64%

JOHNSON & JOHNSON

(JNJ)

33659

0%

ANADARKO PETROLEUM Call

(APC)

31525

New

ROYAL BANK SCOTLAND Cl 4

(RBS)

30076

0%

MEDCO HEALTH SOLUTIONS

(MHS)

28017

New

N. AMERICAN ENERGY PTNRS

(NOA)

26763

0%

Perry reduced the portfolio value of his fund from $3.4 billion at the end of the second quarter to $2.4 billion at the end of September. He also cut the number of different positions in the portfolio from 47 at the end of June to 33 at the end of the third quarter. Perry sold out many positions. For example, he is no longer bullish on Citigroup (C). At the end of the second quarter, Perry Capital was reported to own $171 million of Citigroup call options and $82 million worth of Citigroup stocks. Perry sold out all these stakes in the third quarter. Perry also sold out his stakes in BMC Software Inc (BMC), Mosaic Co (MOS), Williams Cos (WMB) and NYSE Euronext (NYX).

During the third quarter, Perry also opened some new positions. For example, Perry Capital initiated a brand new $104 million position in Motorola Mobility Holdings (MMI). It returned 2.89% since the end of the third quarter. This was a merger arbitrage position. Perry was also bullish about BP Plc (BP). He bought $82 million of BP stocks and another $90 million worth of the call options of BP. Since the end of September, BP returned 19.57%, beating the market by more than 8 percentage points. Seth Klarman’s Baupost Group also had nearly $500 million invested in BP shares.

Perry was also bullish on Anadarko Petroleum Corp (APC). In the third quarter, Perry Capital increased its stake in APC by 145%. The fund reported to own $124 million of APC stocks at the end of September. Additionally, Perry also initiated a brand new $31.5 million worth of APC call position during the third quarter. Since the end of September, APC returned 27.28%, outperforming the market by nearly 16%. John Paulson was in favor of APC as well. As of September 30, his Paulson & Co had nearly $900 million invested in this stock.

Other large cap stocks Perry is bullish on are Yahoo Inc (YHOO), Royal Bank Scotland Group Plc (RBS), General Motors Co (GM) and Johnson & Johnson (JNJ). Though Perry’s bet against Russell 2000 index (IWM) had a negative impact on the fund’s return, his investments in two energy stocks, BP and APC, as well as their calls, covered some of the loss. Moreover, the track records of his flagship fund since inception are stunning. Our research has shown that by focusing on the top stock picks of hedge funds like Perry Capital, investors are more likely to beat the market in the long run.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Hedge Fund Manager Richard Perry's Top Stock Picks