2011 Performance Review For Paulson & Co.'s Largest Equity Holdings

Includes: AU, C, COF, GLD, GOOG, RIG, WFC
by: Zvi Bar

John Paulson, billionaire and hedge fund manager of Paulson & Co., is well known for betting against subprime mortgages before they collapsed and buying banks after their collapse. In 2010, Paulson earned a record amount of money for managing a hedge fund on the back of large bets on gold and financials that he purchased after their descent.

In 2011, though, Paulson & Co.'s funds have had their issues. The funds underperformed the broader market due the poor performance within the financial sector, where the hedge fund was overweight. Paulson continued to hold some large financial positions into the fourth quarter of 2011, along with his significant gold allocation.

Additionally, negative news hit Paulson & Co. when it was discovered that the hedge fund was a large investor in Sino Forest, a Chinese timber and wood company that has come under scrutiny due to accusations of fraud and more recently, sought waivers from bondholders. Following the spring allegations against Sino Forest, Paulson exited the investment, and some of his investors also exited the hedge fund, as many investors fled from equity investments through the summer.

Below is a chart listing the largest equity holdings within Paulson & Co.'s most recent 13F. I have also provided the 1-month, 6-month and 2011-to-date share price performance rates for these equities. Click to enlarge: Click to enlargeClick to enlarge Paulson & Co. increased its holdings in several gold mines, including Rangold (NASDAQ:GOLD), Agnico-Eagle (NYSE:AEM) and Iamgold (NYSE:IAG). Nonetheless, Paulson reduced its exposure to Anglogold Ashanti (NYSE:AU), selling about 3.2 million shares, its second largest holding, behind the SPDR Gold ETF (NYSEARCA:GLD). Gold was the only listed holding to appreciate within 2011. Despite the sell-off to hit gold since the end of the summer, the yellow metal is still up over eleven percent since the start of the year. The gold miners have not fared as well, with several negative for the year due to speculation over a gold correction and a general lack of hedging within the gold mining industry.

Paulson continued to hold large financial investments into the fourth quarter of 2011, with Capital One Financial (NYSE:COF), Citigroup (NYSE:C), Hartford Financial (NYSE:HIG), Wells Fargo (NYSE:WFC) and Suntrust (NYSE:STI) all included in the hedge fund's top holdings. Several of these financials have been the hedge fund's best performers over the last month, though some of these financials are among the fund's worst performers through 2011, along with Transocean (NYSE:RIG).

Paulson's largest new purchase last quarter was Motorola Mobility Holdings (NYSE:MMI); it bought nine million shares of the company, valued at about $340 million, at the end of the third quarter, but the position was still not large enough to make the company's top ten. Google (NASDAQ:GOOG) is currently acquiring MMI, and it appears that this purchase is an example of merger arbitrage, a common strategy for the company.

Disclosure: I am long C.

Disclaimer: This article is intended to be informative and should not be construed as personalized advice as it does not take into account your specific situation or objectives.