ETFs Hedge Fund Titan John Paulson Would Love
The ups and downs of John Paulson's eponymous hedge fund, Paulson & Co., are well-documented. Paulson rose to acclaim for his prescient bets against sub-prime mortgage securities.
Paulson, who has not been known as the media's biggest fan, was featured on the cover of the latest issue of the Bloomberg Businessweek and was the subject of a wide-ranging interview. In the interview, he spoke a bit about his firm's recent struggles.
Despite Paulson's legendary performance in 2008, his firm's two largest funds, Paulson Advantage and Advantage Plus, experienced dreadful 2011 performances. Paulson Advantage gave up 36 percent while Advantage Plus tumbled 52 percent according to Businessweek. However, Paulson & Co. did not become one of the largest U.S. hedge funds by consistently losing clients' money.
For those that want to try their hands at outperforming Paulson, here are some ETFs the man himself might like.
Market Vectors Gold Miners ETF (NYSE: GDX) Paulson's bullish stance on gold is well-known. The SPDR Gold Shares (NYSE: GLD) could also easily make this list because the fund was also among his firm's holdings at the end of the first quarter.
Gold miners have drawn favor from Paulson & Co. as the firm held at least seven at the end of the first quarter, including Barrick Gold (NYSE: ABX) and Gold Fields (NYSE: GFI). Overall, Paulson's first-quarter 13F filing indicates the firm's gold miner stakes comprise roughly a third of GDX's weight, making the ETF an ideal way for investors to mirror Paulson.
Market Vectors Gaming ETF (NYSE: BJK) Paulson held stakes in two casino stocks – MGM Resorts (NYSE: MGM) and Caesars Entertainment (NYSE: CZR) – at the end of the first quarter. MGM is a top-10 holding in BJK, but Caesars has not made it into the ETF yet since returning as a public company earlier this year. Particularly in the case of Caesars, Paulson is betting on one of the more controversial casino stock as the company has $19 billion in debt, nearly quadruple the debt load of Wynn Resorts (NASDAQ: WYNN).
Investors might want to wait to see if BJK can find a floor in the $30-$31 area before rushing into this fund, which has taken a double-digit loss since the start of the second quarter.
iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund (NYSE: IEO) Paulson did not hold a lot of energy stocks at the end of the first quarter and the hedge fund eliminated its entire position in Transocean (NYSE: RIG), the world's largest provider of offshore drilling services. The firm did, however, hold a stake in Anadarko Petroleum (NYSE: APC) at the end of Q1.
Anadarko, one of the largest U.S. independent oil and natural gas producers, was Paulson & Co.'s seventh-largest holding, according to Whale Wisdom. Investors might note two facts about Paulson's Anadarko stake. First, Paulson &Co.'s Q1 13F filing showed that the hedge fund significantly reduced its position in the stock. Second, anyone that buys Anadarko at current levels would be getting superior pricing to what Paulson got. The firm added the stock in the first quarter of 2011 when it traded around $80. Friday, it traded closer to $65. Anadarko is IEO's third-largest holding with a weight of almost eight percent.
ProShares UltraShort Euro (NYSE: EUO) Earlier this year, Paulson said in a letter to investors the euro is “structurally flawed,” and will eventually fall apart. He has put client money where his mouth is by betting against European sovereign debt and establishing a long position on credit default swaps used to insure that debt against default.
Financial Select Sector SPDR (NYSE: DEM) Paulson is known for shorting sub-prime mortgages, but he was quick to embrace the financial services sector just as the darkest clouds from the credit crisis appeared to have passed. Wells Fargo (NYSE: WFC) and Bank of America (NYSE: BAC), which combine for over 13 percent of XLF's weight, are found among Paulson's holdings.
For more ETFs John Paulson might enjoy, click here.
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