Most institutional investors have recently filed their Form 13-F's with the SEC that lists their fund's holdings. In this article we will take a quick look at interesting additions, removals, new positions, and closed positions from Sun Valley Gold LLC.
Sun Valley Gold LLC is a privately-owned hedge fund sponsor formed in Idaho in 1999 that focuses on metals and mining companies. The president of the fund is Peter Palmedo, a former principal at Morgan Stanley & Co. The firm has over $3 billion in declared assets over the most recent quarter and is heavily invested in many precious metals companies. Though we do stress that out of the $3 billion in assets, the vast majority of it is GLD puts/calls, there is only about $300 million invested in actual mining equities.
But before we discuss interesting changes in fund's holdings let us briefly introduce investors to what a Form 13-F is and its investment benefits.
Introduction to the Form-13F
Form 13F's are forms that are required by the US Securities and Exchange Commission for all institutional investment managers that exercise investment decisions over assets totaling more than $100 million dollars. These forms must be filed no later than 45 calendar days after the end of each quarter and require the listing of equities, certain equity options and warrants, closed-end investment companies, and some convertible debt securities. You can find more details at the SEC website.
These filings are useful for investors because they give insight into the actions of the large investment management funds that manage billions of dollars worth of assets - the true "whales" of the investment world. Since they are large management firms, they have the capital to employ research teams and do much more due diligence than most individual investors can do. So by following their holdings an investor can get some good ideas on what to buy or sell, after all it is not always necessary for investors to "reinvent the wheel." These forms are a wonderful way for them to piggy back on some of the research done by large firms - though due diligence still must be done because hedge funds do often make mistakes and investors should still understand why they own their investments.
Investors should also note that 13-F's are always a bit dated and are a "moment-in-time" report, which means these positions may be quite different today versus what they were at the end of the previous quarter. Additionally, for large positions, a fund may have already bought their desired shares and thus investors buying those same positions today may be buying a little late in the game.
After knowing the things to watch out for, Form 13-F's can still provide investors with some excellent information on positions to own and what they should consider selling.
Top Holdings, New Positions, and Closed Positions on 9/30/16
Source: Whale Wisdom
Source: Whale Wisdom
While Primero and Stillwater were small positions in the portfolio, the Royal Gold sale was fairly large and it was before what fellow Seeking Alpha Author Gold Mining Bull calls an excellent earnings report. Ordinarily this would set off some red flags in our mind about Royal Gold, but it looks like Sun Valley was selling a lot of positions in the quarter (15 total) and thus we wouldn't read too much into the Royal Gold sale considering the fund's sales moves.
In terms of purchases, the fund's purchases were few but massive as it bought $2.5 billion in GLD calls and a good amount of GLD puts, GDX calls, and SLV calls - which is a bullish wager on the gold and silver price.
Source: Whale Wisdom
What this tells us is that the fund's management is obviously bullish on gold and silver, but not so bullish on miners (we have said in the third quarter they were overvalued) OR doesn't feel like it has any particular advantage selecting individual miners.
There are some tidbits of value we do look for when funds are in liquidating miners - what positions are they adding to or maintaining ownership. Here's a look at the positions the fund maintained or added to in the third quarter.
Source: Whale Wisdom
The one that clearly stands out is the addition to Eldorado Gold (NYSE:EGO), which was one of only two miners that the fund added to in the quarter. Eldorado is a miner that we are very interested in (after telling investors to sell amid Greek concerns) as Greece looks like it will be more facilitating towards mine development and Eldorado has raised cash by selling some foreign held mines. While we don't own a position in the company yet, it is one company that we are doing further research for a potential investment.
Another interesting move is the Vista Gold (NYSEMKT:VGZ) purchase, which is an explorer/developer in Australia. Vista Gold holds the large Mount Todd deposit, which contains more than 7 million ounces but is relatively low-grade and really needs higher gold prices to be economically feasible. These gold-leveraged plays are nto particularly interesting to us so we tend to avoid them, though we have not been following the companies other property pursuits so we may stand corrected if they have other potential discoveries.
Conclusions for Investors
Based on the latest asset disclosure by the Sun Valley Gold fund, there are two main takeaways.
First, the fund chose to sell-off much of its miners and buy calls and puts on the gold ETF's with a very heavy leaning towards calls - which is bullish. What we take away from this is that the fund sees more value in wagering on the gold price (in this case rising) than it does picking individual explorers and miners. That suggests that as of the end of the third quarter, the fund probably though gold miners were overvalued and couldn't find individual miners that presented an investment opportunity that was greater than simply betting on gold.
That is a similar conclusion to what we reached a few months ago and caused us to sell almost all of our miners. Obviously, with the recent drop in both gold and miners things have changed and, as we stated last week, we are much more bullish on the miners now.
Secondly, in terms of potential equity purchases, we think the fund's purchase of Eldorado Gold is very interesting and is a company that we would like to research further to see if it makes a good investment at this time. As for Vista Gold, we are not particularly attracted to the leveraged gold-explorer plays and thus we are not interested, but we do note that it is a positive sign that the fund chose to buy more of the company's shares - one of only two increasing existing gold stock equity positions in the quarter.
Disclosure: I am/we are long SGOL, SIVR.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: We may choose to initiate a position in EGO
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