AlphaClone

Ted Weschler, Peninsula Capital's founder is Buffett's new hire

This morning Berkshire Hathaway announced it has hired Ted Weschler, founder of Peninsula Capital Management, a Charlottesville, Va.-based hedge fund the he founded in 2000.  The two first met after Mr. Weschler had won the annual charity auction for dinner with Mr. Buffett.  Mr. Weschler is the second hire for Berkshire after the firm hired Todd Combs last year.  Both managers are expected to succeed Buffett as managers for Berkshire's investments.

So how good an investor is Mr. Weschler?  Well investing quarterly in the manager's ten largest positions based on his 13F public disclosures would have returned 90% since 10/31/2003, three times as much as the S&P 500 TR index which returned 29% over the same period.  What's Mr. Weschler investing in now? His largest positions include DirecTV [DTV], WR Grace & Co. [GRA] and Davita Inc. [DVA].

It's a $150,000 Mistake

About six months ago, we increased our minimum account size requirement from $100,000 to $250,000. That was a mistake. Since then many members have emailed us requesting we make an exception. One member took us to task for “being impatient” and “greedy”. We humbly thank them for the slap. Having received enough requests for exemptions I realize that raising the minimum was a mistake. As of this morning the minimum account size for investment accounts is $100,000.   Keep the feedback coming.

Q2 2011 Most Popular Hedge Fund ETF Holdings

Gold [GLD] retains the top position as the most popular ETF amongst AlphaClone's manager universe. The ETF is held as a top twenty position by 22 managers for a combined disclosed market value of $7.3 billion as of the end of the quarter. The ETF's sentiment score increased from 168 in Q1 to 175 last quarter indicating that the aggregate portfolio exposure to the shiny commodity has actually increased. 

By far the largest holder of the metal is John Paulson's firm Paulson & Co. with 31.5 million shares at $4.6 billion in market value or 16.3% of the manager's disclosed portfolio. News that Paulson's fund has struggled this year is mirrored in the performance of the manager's Top 10 Holding clone. The clone portfolio has returned negative -14.4% YTD vs. negative -2.3% for the S&P 500TR (as of 8/30/2011). A closer look at the clone's holdings reveals that the underperformance had nothing to do with the manager's position in Gold [GLD], in fact that position has been a winner. Instead the clone entered the year with several positions in financial stocks such as Hartford Financial [HIG], Citigroup [C] and Suntrust Bank [STI] and has held those positions to the present resulting in heavy losses (see table below).

 

	Rebalance Price
	08/19/11	02/21/11	% Ch
SPDR Gold [GLD]	$179.95	$135.41	32.89%
Anglogold... [AU]	$45.84	$47.44	-3.37%
Citigroup Inc [C]	$26.77	$49.08	-45.46%
Anadarkot... [APC]	$66.09	$80.78	-18.19%
Capital One [COF]	$41.30	$52.58	-21.45%
Hartford... [HIG]	$17.72	$30.58	-42.05%
Suntrust... [STI]	$16.91	$31.72	-46.69%

 

In fact, holding Gold [GLD] and Gold Miners [GDX] has propelled AlphaClone's core ETF investment strategy to lofty returns despite the brutal downturn in August. The strategy, which invests quarterly in the ten most popular ETFs amongst our universe of managers, has backtested to return 3.3% YTD vs. negative -5.5% for the MSCI World Index with dividends (as of 8/30/2011).  We'll release actual net of fees composite performance numbers for this and other core strategies in a couple of days. 

Q2 2011 Most Popular Hedge Fund Stocks in Energy Sector

Marathon Oil [MRO] retains the top spot amongst most popular energy stocks in Q2 2011 while Anadarko Petroleum [APC] has advanced from fourth most popular to second place. With the horrible August the market has had, both stocks have traded down considerably from their quarter end closing price with Marathon down 19% while Anadarko is down 10%.

Investing in the most popular hedge fund energy stocks has historically been a big winning strategy. Investing quarterly in the 10 most popular energy stocks amongst hedge funds in AlphaClones universe has returned 303% since 2000 vs. 136% for the S&P500 Energy Index. The strategy has returned 41% over the past 12 months vs. 28% for its benchmark index. Other popular energy stocks that make up this quarter's portfolio include giants like Exxon Mobile [XOM] and Whiting Petroleum [WLL].

 

HealthCor Management

What do you get when you take healthcare analysts from several top hedge funds and combine them into one fund? The answer is a fund called HealthCor Management, a part of the HealthCore Group which includes both private equity and hedge funds focused on the healthcare sector. The firm was founded by Arthur Cohen and Joseph Healey in 2006 after each had served as lead healthcare analysts and portfolio managers at highly respected firms. Mr. Cohen was managed healthcare investments at Tiger Management and SAC Capital while Mr. Healy did the same at Kingdon Capital Management.

If the performance of their top 10 holdings clone portfolio is any indication, they are truly skilled investors. The clone has returned 59.9% since inception vs. -0.8% for the S&P500 Healthcare Index based on “match-the-manager” weighting (42.4% based on equal weighting) and has outperformed in every year. What does that clone hold now? The fund's largest two positions are Aetna Inc. [AET] and Quest Diagnostics [DGX] at $190 million in disclosed market value each followed by Stryker Corp [SYK] at $170 million (see table below).

HealthCore Management: Top 10 Holdings Clone (match-the-manager)

Clone | +/- S&P 500 Healthcare Index

2006: 9% | +3.2%

2007: 12.1% | +6.7%

2008: -10.4% | +14.1%

2009: 20% | +2.9%

2010: 19.3% | +18.6%

2011: 2.1% | 0.7%

 

HealthCor Management: Top 5 Holdings – Q2 2011

1. Aetna Inc. [AET] 
2. Quest Diagnostics [DGX]
3. Stryker Corp [SYK]
4. Magellan Health [MGLN]
5. Allscript Health [MDRX]