Registered hedge funds beyond the $100 million threshold file quarterly updates with the Securities and Exchange Commission no later than 45 days after the end of the quarter. Thus, the 1Q filings are in. Street of Walls, a finance industry career counseling and training website, has made use of these filings in a breakdown of the holdings of 22 of the top hedge funds.
Two Kinds of Crowdedness
Of especial interest are two data points: crowdedness among newly-initiated positions on the one hand, and crowdedness among existing positions on the other. Both of these data points suggest that news headlines still drive trading.
The most crowded new ideas were: Apple (AAPL), Google (GOOG), Wynn Resorts (WYNN) and Hospital Corporation of America (HCA). It seems that hedge funds follow the headlines, because each of these has starred in a few.
In January, AAPL announced its educational initiatives, iBooks 2 for iPad and iBook Author for Mac OS X. Also, the first quarter saw continued jockeying over intellectual-property issues between AAPL and all the Android-based hardware manufacturers on the other. A trade involving either AAPL or GOOG is at least in part a bet on how that jockeying turns out.
By February, those ubiquitous “people familiar with the matter” were telling reporters that the necessary authorities on both sides of the Atlantic were going to approve of GOOG’s acquisition of Motorola Mobility. They were right.
Meanwhile, the future of Wynn Resorts came to turn on an epic battle between the namesake, Steve Wynn, and his nemesis Kirk Kerkorian.
Finally, what one thinks of the prospects of HCA turns in large part on what one thinks of the prospects for the Affordable Care Act, the signature legislative initiative of the Obama administration. The first quarter ended with three days of legal arguments over this point before the U.S. Supreme Court.
Thus, it isn’t a surprise that these were the crowded new trades. They were also among the most obvious news-based trades.
Crowded Existing Positions
Separately, Street of Walls says, even among not-so-new ideas there is some crowding. The most crowded positions in the universe analyzed for this report included Express Scripts (ESRC), Delphi Automotive (DLPH); Qualcomm Inc. (QCOM), and Citigroup (C).
Express Scripts is a pharmacy benefit manager, and some drama in the first quarter arose because of the pending question of approval of its big merger deal with Medco Health. Right at the start of the second quarter, in April 2, the Federal Trade Commission would formally close its investigation of the merger, allowing the deal to proceed.
Delphi Automotive is an auto parts company based in Troy, Michigan, one that filed for bankruptcy in October 2005, and emerged in reorganized form four years later. In its new incarnation it went public in 2011, and was selling for just $22 a share at the beginning of the New Year 2012, but this price shot up quickly. Delphi unveiled some impressive new gadgets at the 2012 Consumer Electronics Show that month and was going for more than $28 at the beginning of February.
Citigroup was in the news in March of this year, due to controversy over the Federal Reserve’s “stress tests” and competing sets of numbers. C entered the month of March at $34 a share, rose to $38 in mid-month, but had begun a slow slide by the time the month/quarter ended. (That slide has continued.)
So, as it happens, all the stocks the Street of Walls tells us are now crowded hedge fund plays are also quick/newsy plays, or were at some point in the first quarter, with the partial exception of QCOM. The newspapers haven’t had much to say about it, but QCOM serves these days as the big wireless-cellular manufacturers’ proxy.
If you’re interested in investing in a hedge fund with uncrowded positions, Street of Walls tells us that the least crowded books within the universe it analyzed are those of Hawkshaw, Hayman, Icahn, Fairholme, and Baupost. Hayman in particular is unique in the degree to which it is moving into financials, while many of the others are moving out. Hayman’s exposure to the financial sector increased 59.7 percent.
Financials were the scene of a pull-back for the rest of the hedge fund industry, Street of Walls proposes, because ”low rates and mortgage related put-back positions … may have led managers to trim and exit positions throughout 2011 and into 2012.”