Moby Waller's  Instablog

"Funds increase bet in consumer discretionary, Google present in majority of funds

Q1 2013: Funds Increase Bet in Consumer Discretionary Stocks

The 50 largest hedge funds increased their equity exposure by over 5% in Q1 2013.

This quarter, Boeing Co. (BA) was the favorite allocation of the funds. The stock experienced $1.6 billion in inflows, which amounted to nearly 250% of its Q4 value in the funds' aggregate portfolio. Boeing's shares are up 28.2% year-to-date ("YTD"), compared to 15.7% for the S&P 500 (SPY) (SPX).

However, the largest dollar-value increase in equity exposure arose from the January IPO of Norwegian Cruise Line Holdings Ltd, (NCLH) which was backed in part by Apollo Global Management LP.

It's also interesting to note that, though the funds sold some exposure in Google Inc. (GOOG), the technology company was present of the majority (62%) of the fifty hedge funds' portfolios. This distinction was previously held by Apple (AAPL). Two quarters ago, Apple was held by just as widely as Google, and it was the largest equity holding of nearly one-fourth of the funds. However, by Q1 2013, Apple was held by only 40% of the funds, with only four carrying it as the top stock holding.

While the top 50 hedge fund managers largely increased their exposure to equities, the funds also made significant reductions to their stakes in two successful stocks in 2013: News Corp. (NWS) and American International Group Inc. (AIG). The funds reduced their holding in News Corp by 20.3%, and the stock represented the largest individual equity sale in three of the fifty hedge funds. In addition, the funds reduced their exposure to AIG by 16.2%. With these sales, fund investors seem to be predicting a slowdown or reversal for these two issues, as AIG and News Corp. have had very similar YTD returns as Boeing in 2013: 27.2% and 28.8%, respectively.

At the country-level, the top 50 hedge funds continued their home country bias by adding primarily to U.S. equities (90% of the top 50 funds are domiciled in the U.S.). Stocks domiciled in Australia, on the other hand, received the largest decline in country exposure. This was primarily due to sales of Aurizon Holdings Ltd., a local Australian freight transportation and infrastructure company.

Sector-Level: Funds Add to Overweight Consumer Discretionary Exposure

On the sector-level, the top 50 hedge funds added the most exposure to their overweight position in theConsumer Discretionary sector (XLY). The funds made large purchases in CBS Corp (CBS), Virgin Media Inc. (VMED), and Comcast Corp. (CMCSA), and also benefitted from the new exposure to Norwegian Cruise Line Holding and Liberty Media Corp. (LMCA) (which was spun off from its Starz assets in January). VMED was also the largest equity purchase for three of the fifty funds, including Third Point Management Co. LLC,
which disclosed a 4.1% position in the company.

As a result, the 50 largest hedge funds showed a 20.1% weighting in the Consumer Discretionary sector at the end of Q1, which was 8.5 percentage points larger than the sector's weight in the S&P 500 index. On the other hand, the Information Technology sector was the only group to experience outflows in Q1. This trend was driven by sales of Symantic Corp. (SYMC), Oracle Corp. (ORCL), Facebook Inc (FB), and Yahoo! Inc (YHOO).Though these sales contributed to an underweight portfolio exposure in the Information Technology sector (XLK) (-1.7 percentage points), the Consumer Staples sector (XLP) remained the most underweight group relative to the S&P 500. The sector's weight of 6.4% in the aggregate portfolio was 3.6 percentage points smaller than its weight in the S&P 500 index.

Funds Overweight AIG, EQIX, HAIN, TTWO

On the security-level, LyondellBasell Industries (LYB) was the most overweight equity of S&P 500 constituents in the aggregate portfolio (+2.5 percentage points*), but this was primarily due to Apollo Capital Management's 15.2% stake in the company. Other overweight exposures included AIG, which, despite its overall reduction in the portfolio in Q1, was the next largest active weight relative to the S&P 500 (+1.2 points, but down from +1.6 points in Q4). On the other end of the spectrum, Exxon Mobil Corp. (XOM) was the most underweight holding of all S&P 500 stocks, with a portfolio weight 2.4 percentage points lower than its exposure in S&P 500 index. Other underweight equities in the portfolio included Berkshire Hathaway Inc. (BRK-B) and Wal-Mart Stores Inc (WMT).

In looking at S&P 400 mid-cap stocks, the hedge funds pared exposure to their most heavily-weighted position during Q1 2013: Equinix Inc. (EQIX). The funds' holding of the provider of network-neutral data center and colocation services decreased from 6.8 percentage points above that of the S&P 400 index to 6.5 points over the quarter. Equinix was a positive bet in 2012, returning 103.4%, but the stock has only returned 10.5% year to date ("YTD") versus 17.6% for the S&P 400 Mid-Cap index.

Within small-cap stocks, the funds' again reduced their most overweight holding for the second consecutive quarter. Hain Celestial Group Inc. (HAIN), a natural and organic beverage, snack food, and personal care company, was overweight by 4.8 percentage points versus the S&P 600 in Q3 2012, but only +3.9 points in Q4 2012 and +3.7 points in Q1 2013. The stock has continued to outperform though. Its 47.9% gain in 2012 has been followed by a return of 22.3% YTD (versus 16.2% for the S&P 600). In addition, the funds added to their next largest overweight position in small-caps: Take-Two Interactive Software Inc. (TTWO) (+2.2 percentage points versus +1.8 points in Q4). The developer of interactive entertainment through its Rockstar Games and 2K labels underperformed in 2012 but has returned 44.5% YTD.

Activist Shareholders: Positions Taken in SVU, GRPN, NUAN

The "SharkWatch50″ is a FactSet compilation of the fifty most significant activist investors. In Q1, the nine SharkWatch activist investors within the top 50 hedge funds disclosed several large, new positions. JANA Partners LLC-which just broke into the top 50 hedge funds this quarter-took 5.5% and 3.3% stakes in the depressed shares of SUPERVALU Inc. (SVU) and Groupon Inc. (GRPN) (the companies' lost 69.6% and 76.4%, respectively, in 2012). In addition, the activist fund also announced a 9.1% stake in Oil States International (OIS), in conjunction with a statement of interest in splitting the oilfield services and accommodations segments of the company. Since the April 29th announcement, OIS's shares have returned 31.8%. In addition, several other SharkWatch funds previously disclosed material positions prior to the recent release of 13F filings. ValueAct Capital Management took an 8.2% stake in Invensys PLC, a diversified technology group, and Icahn Associates disclosed a 10.0% position in Nuance Communications Inc. (NUAN),a voice and language solutions company

Top 50 Holdings: Top 50 Hedge Funds

Market value is in millions of dollars and represents the market value held by the top 50 hedge funds at the end of the quarter. The market value change measures the total position change of each security multiplied by its quarter-end price. "% Port" indicates the weight of the stock in an aggregated equity portfolio of the top 50 hedge funds. "% Shares Out" indicates the proportion of the shares outstanding of the stock owned by the aggregated portfolio of the top 50 hedge funds and the "Total" and "50 Highest" lines show the average for this item*. "# of companies" indicates the number of funds (out of the top 50) holding the stock.

Most Widely Held Hedge Fund Stocks Table
(click to enlarge)

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Courtesy of FactSet

This Saturday is the Preakness at the Pimlico race track in Maryland, the 2nd leg of Horse Racing's Triple Crown. Orb took home the Kentucky Derby on a sloppy track. A big longshot, Golden Soul at 32-1, came in 2nd in the Derby, which messed up our projections a bit … as did the performance uncertainty of young horses on that muddy wet day - but still Price did have 2 of the Top 4 finishers, while Moby had 3 of the Top 4.

Currently, the weather projection for Baltimore on Saturday at race time is around a 50% chance of a rain showers - hopefully it shouldn't be a major impact.

Here are our Preakness picks:

Price Headley, President & Founder of BigTrends.com and long association with the horse business:

Orb (Post Position 1) could well be the first Triple Crown winner in 35 years here especially in a fairly non-descript batch of 3 year olds this season. However, at even money, I think you have to wonder if perhaps he may not like the tighter turns at Pimlico and would prefer the extra distance at the Belmont in 3 more weeks. So if there's a race to play against him, this is it But I'll still include him in exotic boxes, and hope that the longer odds horses manage to get up for a better pay day.

MyLute (PP 5: 5-to-1) has shown some powerful speed ratings in his past 2 races and while 5th in the Derby was only beaten less than 4 total lengths in a sloppy track. On a fast surface at Pimlico he could prosper, especially under the guiding hands of jockey Rosie Napravnik. Rosie knows Pimlico well, having been a leading rider there. Should be coming on strong at the wire.

Will Take Charge (PP 7: 12-1) was way wide and had to check meaning he lost a lot of ground in the Derby. I think under jockey Mike Smith, he can get a piece of the exotics. A wildcard, but probably the best value bet in the race.

Departing (PP 4: 6-1) is a winner in 4 of his 5 starts, and should also like the fast track. Has a good closing kick so expect him to get up for a piece of the action as well.

Bets to consider:

$20 win on #5
$10 win on #7
$4 Exacta Box on 1,5,7
$2 Trifecta Box on 1,4,5,7

Moby Waller, Portfolio Manager at BigTrends.com and former CBOE Market Maker:

Orb seemed one of the 2 or 3 best horses going into the Derby, and he basically proved it convincingly in the Derby. The Preakness is the shortest race of the Triple Crown and normally is won by the best horses that can get to the front or stay near/a bit off the pace - the Derby and upcoming Belmont can provide more surprises and often better wagering opportunities than the Preakness.

We've seen many horses win the first 2 legs of the Triple Crown in the last 35 years since Affirmed was the last winner in 1978, and I think Orb will continue that trend in the Preakness. Also note that at least 1 "fresh" horse (one who didn't run in the Derby) has finished in the Top 3 in the Preakness consistently in recent years.

The battle is for 2nd, 3rd and 4th in my view - and as a likely even-money (or less) favorite, if Orb does come out on top the parimutual payouts won't be huge (especially when compared to the Derby). The likeliest longshot that can hit the board is Govenor Charlie in my analysis.

Here is my Top 4:

1st Orb (Post Position 1, 1-1 Morning Line Odds)
2nd Departing (PP 4, 6-1)
3rd Govenor Charlie (PP 8, 12-1)
4th MyLute (PP 5, 5-1)

Theoretical Bets:

$2 Exacta Box (1,4,5,8) = $24
$1 Trifecta Box (1,4,5,8) = $24
$10 Win/Place/Show on #8 = $30

Best of luck and enjoy the weekend!

BigTrends.com
1-800-244-8736

It's time for our annual KY Derby selections and commentary. Last year we were pretty dead on, hitting many horses that finished in-the-money in the Triple Crown Races (especially Price's picks).

First, we'll start off with an updated table of past Derby winners, their speed ratings and final tune-up race. Our analysis of past data indicates that horses with strong 100+ speed ratings in prep races have a better probability of winning the big race.

Price Headley, CEO of BigTrends.com:

The big wild card in the 2013 Run for the Roses will be the weather, as forecasts show an 80% chance of rain on Saturday in Louisville.
If it is muddy on the track I like to put a little back up money on the long shots of 33-1 or higher, which can save the day if the wet track muddies the current form.

My favorite in this year's race is Verrazano (Post Position 14, 4-1 odds). He's the second choice behind new darling Orb, but I like Verrazano's consistency, as he is the only horse with not just 2 but 3 straight speed ratings over 100. So I will key most of my bets around him.

The Derby usually favors closers and horses that want the extra ground. On that note here's my top challengers to Verrazano:

Normandy Invasion (PP 5, 12-1): Closing fast on Verrazano at the end of the Wood Memorial, he has also posted impressive workouts lately. The profile reminds me of the similar setup when I picked Funny Cide to win the Derby. Must use this one for exotics and saver win bets.

Revolutionary (PP 3. 10-1): Responded gamely to come back to win the Louisiana Derby. I like his heart.

Vyjack (PP 20, 15-1): It's hard to look past an undefeated colt with good speed. Breaking from the far outside is not harmful in a large field, the question is if he has staying power.

So my theoretical bets on a sample $100 model portfolio look like this:

$20 Win on 14
$10 Win on 5
$5 Exacta box 5,14
$5 Exacta box 14,20
$5 Exacta box 3,14
$1 Trifecta 14 with 5 with ALL
$1 Trifecta 5 with 14 with ALL

Moby Waller, Portfolio Manager & Analyst:

The 3 year old horses in this race haven't gone such a long distance before with such a large field. With the expected rain, it will be the tough horses with heart that will emerge - those that can run off the pace and/or closers. Therefore, I threw out what looks like the speed horses that are likely to fade late or get swallowed up by the pack - one of those wire-to-wire horses may end up proving it can run off the pace, but I'd rather select ones that have already proven they can.

Here's my projected Top 4 finishers:

Revolutionary (PP 3, 10-1)
Java's War (PP 19, 15-1)
Orb (PP 16, 7-2)
Normandy Invasion (PP 5, 12-1)

Live Longshots that can also hit the board (meaning top 4):

Vyjack (PP 20, 15-1)
Itsmyluckyday (PP 12, 15-1)

I think any of these 4 can win it, so I would be looking to do some Exacta and Trifecta boxes:

Theoretical bets:

$2 Exacta Box (3, 19, 16, 5) = $24
$1 Trifecta Box (3, 19, 16, 5) = $24
$0.10 Superfecta Box (3, 19, 16, 5, 20, 12) = $36
$0.10 Superfecta Box (16, 5, 15, 12, 14, 8) = $36

Good luck!
Price Headley,
BigTrends.com
1-800-244-8736

(click to enlarge)