Here’s what hedge funds bought and sold in the last quarter

Equities

Every quarter hedge funds with over $100 million under management have to submit documents to the US Securities and Exchange Commission. This gives traders invaluable insight into what the world’s top money managers have been buying and selling in the past quarter.

Ray Dalio’s Bridgewater Associates, the largest hedge fund in the world, recently filed its latest update. Here are five investments the fund dumped in second quarter.

Ray Dalio’s biggest portfolio changes

The three largest holdings that Bridgewater exited in the second quarter are all ETFs:

  • iShares Barclays 20+ year Treasury Bond
  • iShares iBoxx High Yield Corporate Bond
  • iShares JPMorgan USD Emerging Markets Bond

Dalio also closed a $28.6 million stake in Royal Bank of Canada, and a $25.1 million stake in Toronto-Dominion Bank.

Bridgewater ramps up gold stake, Buffett gets on board

Bridgewater put nearly half a billion dollars into gold during the second-quarter, increasing holdings in the iShares Gold Trust ETF and the SPDR Gold Trust ETF. At almost a billion dollars, the SPDR Gold Trust is the firm’s second-largest holding.

Gold rallied 13% in the second quarter, and hedge funds who held onto or increased their positions will have benefited further thanks to the surge above $2,000 in Q3.

Dalio isn’t the only fund manager to pile into gold in the second quarter. Mason Capital Partners, Sandell Asset Management and Caxton Associates all took up positions on SPDR Gold Trust as well.

Even Warren Buffett, who famously dislikes gold as an investment has joined the party, taking a stake worth $563 million in Barrick Gold – the world’s biggest gold miner.

Gold is a popular inflation hedge because it is priced in dollars – as inflation erodes the value of the dollar, gold prices rise.

What else have hedge funds been buying?

On top of gold, hedge fund managers including George Soros, Dan Sundheim, and Daniel Loeb have been snapping up tech stocks.

Zoom and PayPal saw strong demand thanks to the increased need for their services as more people across the world are forced to work and shop from home. Zoom’s stock price has leapt 327% this year, with users find new applications for the service, such as streaming weddings, as well as the usual business calls.

Soros doubled his stake in Amazon, while Sundheim increased his holdings of Microsoft 74%.

Stay on top of the latest hedge fund changes with our activity tracker

You can find out more about what the world’s top money managers have been buying and selling with our Hedge Fund Confidence tool in the Marketsx online trading platform.

Use it to get sentiment signals on top stocks with data on who’s being buying and selling US shares.

Stocks open weaker, gold reclaims $2k, M&S streamlines quicker

Morning Note

Stocks yawned a bit, but Wall Street rose to within a whisker of the all-time high in another sub-1% daily move. Crowding into the tech trade showed no signs of letting up as the Nasdaq jumped 1% to a fresh record peak even as the White House announced new curbs on Huawei to restrict access to chips.

Asian shares drifted a bit as the US pressure on Huawei again highlighted the risks to manufacturing and trade, while European stocks were weaker at the open after ticking up a bit on Monday.

Stocks calm, but trouble could be brewing

August remains calm but there may be trouble ahead. Market indicators are sounding a couple of alarm bells – not necessarily to retest lows of March but for a short and sharp pullback. The US stock market is only at all-time highs because of the Fed and huge fiscal stimulus; it does not reflect reality – so what you say, it never has. But forward earnings multiples of ~25x for the S&P 500 are less likely to survive for long than 20x. Put-call ratios are moving in a direction that often correlates to a reversal.

Moreover, Vix futures point to greater anticipated market volatility into the autumn as the US presidential race inevitably tightens. Uncertainty over the result will create angst and volatility. The market is way too confident that Biden will win, although if Trump pulls it off the market could rip higher.

A fresh stimulus package would be a major tailwind for stocks, but it’s going to be hard to get it done with the election looming. The market will have to pay attention to the real economy again. A sharp rise in US mortgage delinquencies to a 9-year high at 8.2% even as house prices and homebuilder confidence rise on record low interest rates should be a cause for concern. Consumer-driven businesses, about 70% of the US economy, will be in for a shock as stimulus cheques have ended.

European shares have underperformed since the March low but would be swept up by any US-led selling. Rising coronavirus cases on the continent is a worry for reopening and could nip the nascent recovery in the bud.

M&S announces fresh job cuts

There is more carnage on the British high street as Mark & Spencer announced 7,000 job cuts in the coming months as it speeds up its ‘streamlining’ process, by which it means slashing jobs, costs and the store footprint and catching up with the modern world of retail. Covid-19 has accelerated a lot of consumer trends and as observed before, it may be the catalyst required to make M&S finally wake up. Food sales rose well, while clothing & home was down severely but is improving.

It’s very hard to gauge exactly how well M&S is doing against the unique backdrop of the pandemic, but we can say that investors should welcome accelerated change given the starting point pre-pandemic. M&S has promised renaissance before and failed, but this time it could be different.

M&S food sales ought to be higher though – Kantar figures this morning show we’re spending a lot more on groceries and all the supermarkets are gaining. However, food price inflation of 2.9% again raises the stagflation alarm bells and underpins the sense that inflation, at least on a range of basic commodities, will rise.

Warren Buffett bets on gold

Gold got a lift from Warren Buffett’s bet on the metal and a weaker dollar this morning has sent prices racing back to $2,000 after clearing the 23.6% retracement resistance around $1980. Gold has further to go longer term but there is yet still a risk of a second corrective move lower within the bull market.

Natural gas update – EIA sees rising prices

Commodities

Warren Buffet just made a $10bn bet on natural gas after prices hit a 25-year low. In the long term, he seems to think gas will play a key part in the energy mix. But where will natural gas prices head in the medium-term?

In its latest Short-Term Energy Outlook, the US Energy Information Administration argued that prices could rise further over the coming months.

The EIA expects US natural gas consumption will decline by 3% in 2020, largely due to lower consumption in the industrial sector because of lockdown efforts and ensuing reductions in economic activity, which will mean working natural gas in storage could hit record levels by October.

“Forecast US natural gas consumption declines by 5% in 2021 as a result of expected rising natural gas prices. The rising prices will reduce the use of natural gas in the electric power sector, which will more than offset increases in natural gas consumption in the industrial, commercial, and residential sectors,” the EIA said.

Whilst the spot price briefly hit a 25-year low before the last contract expired, average prices also very weak on an historic basis. The Henry Hub natural gas spot price averaged $1.63 per million British thermal units (MMBtu) in June, which the EIA notes was the lowest inflation-adjusted price since at least 1989. The EIA said it expects falling production to put upward pressure on natural gas prices through the end of 2021, forecasting Henry Hub spot prices to average $1.93/MMBtu in 2020 and $3.10/MMBtu in 2021.

Warren Buffett slashes Goldman Sachs position

Equities

Warren Buffett dramatically cut his position in Goldman Sachs during the first quarter. Berkshire Hathaway’s latest regulatory filing revealed that the conglomerate sold 84% of its stake in GS, dropping the size of its position from 12 million shares to 1.9 million.

It’s another unsettling sign from the Oracle of Omaha, who famously rode to the rescue of market sentiment during the financial crisis, pumping a huge amount of money into companies to help shore up market confidence.

Goldman Sachs was one of these companies, with Berkshire making an investment of $5 billion through preferred stock. Buffett also invested $3 billion into General Electric, $5 billion into Bank of America, and bought Burlington Northern Santa Fe Railway for $26 billion.

Buffett sells Goldman Sachs, dumps airline stocks

The news that Buffett has dramatically cut his position in Goldman Sachs comes just after the company’s annual general meeting, in which he revealed that he closed his positions on the big four US airlines.

Berkshire had been among the three largest shareholders of American Airlines, United Airlines, Delta, and Southwest Airlines. Buffett stood behind the “four excellent CEOs” of the companies, but said that the outlook for air travel was a lot less clear thanks to the coronavirus pandemic.

Is Warren Buffett planning on sitting out this crisis?

Buffett’s response to the current market downturn couldn’t be more different to that of 2008-9. Berkshire Hathaway is sitting on a record cash pile of around $137 billion. Buffett bought very little in the first quarter and hasn’t found any interesting potential candidates for one of his famous multibillion-dollar acquisitions.

This has weighed on Berkshire Hathaway stock, which is down around 22% year-to-date, compared to a 9% decline for the S&P 500.

Is Goldman Sachs a sell?

Warren Buffett was not the only hedge fund manager selling Goldman Sachs during the first quarter. The Marketsx Hedge Fund Confidence tool shows that Ray Dalio of Bridgewater Associates closed his position. Greenlight Capital’s David Einhorn, however, opened a position worth $11 million.

Overall, hedge fund managers sold around 30 million shares in Goldman Sachs during Q1 (a third of which was Buffett), suggesting negative sentiment amongst the world’s leading money managers.

However, Wall Street analysts rate the stock a “Buy”, according to the Analyst Recommendations tool. The average price target at the time of writing represents an impressive 17% upside at $212.87. Nine analysts rate the stock a “Buy”, while seven rate it a “Hold”.

Warren Buffett dumps airlines, Berkshire posts biggest quarterly loss

CFD Trading
Equities

Is Warren Buffett losing his touch? Stock in Berkshire Hathaway, the legendary company founded by the Oracle of Omaha, is down 22% year-to-date, compared to a 12% loss for the S&P 500. It’s the company’s worst performance against the benchmark index in a decade.

On top of that, earnings released over the weekend revealed a near $50 billion loss in the first quarter; the company’s biggest ever.

According to Berkshire Hathaway, up until the coronavirus pandemic hit the US proper many of its businesses were showing year-on-year revenue and earnings growth, but that quickly changed in April:

As efforts to contain the spread of the COVID-19 pandemic accelerated in the second half of March and continued through April, most of our businesses were negatively affected, with the effects to date ranging from relatively minor to severe,” the company said in its regulatory filing.

Chart: Berkshire Hathaway (blue) performance versus the S&P 500 cash market (purple) since January 1st 2020, Marketsx.

Turbulence for airline stocks hits Berkshire earnings

Buffett announced during the company’s AGM that he had sold off his stakes in American Airlines, Delta Airlines, Southwest Airlines and United Airlines. “Our airline position was a mistake,” Buffett told investors during the virtual gathering, after disclosing that he sold the airline stocks for $6.1 billion, much less than he paid for them.

The news sent AAL down 7.7%, DAL down 6.4%, LUV down 5.7%, and UAL down 5.1% on Monday. Buffett put the blame for the sale squarely on the pandemic, stating that he believes the companies are well-managed, but that “the airline business… changed in a very major way” and that the future was much less certain.

Even if passenger volumes do return to normal within the next few years, airlines could  struggle with the repercussion of taking billions of dollars in loans as part of the US government’s bailout package. As well as repaying these, the Treasury now has warrants to acquire their shares at a discount if it chooses to exercise the right.

Why isn’t Berkshire Hathaway snapping up cheap stocks?

Berkshire had a record $137 billion in cash at the end of the first quarter. The company’s shareholders have been wondering why the Oracle of Omaha hasn’t taken advantage of the huge drop in stock prices on the back of the COVID-19 pandemic. By March 23rd the S&P 500 was down 35% from the February 19th record.

Buying while others are selling is a classic Buffett move, after all. One of his (many) famous suggestions is to be greedy while others are fearful. He used the financial crisis to snap up shares in major US banks like Bank of America and Goldman Sachs for cheap.

But currently he doesn’t “see anything that attractive”. He told investors during the AGM that Berkshire is “willing to do something very big” should the right opportunity come along.

I mean you could come to me on Monday morning with something that involved $30, or $40 billion or $50 billion,” Buffett said. “And if we really like what we are seeing, we would do it.”

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You can also trade our Warren Buffett Blend – a hand-picked basket of stocks designed to mimic the performance of the Oracle of Omaha’s portfolio. Bet with or against him with a single position.

European markets tumble in catchup trade, Trump bashes China

Morning Note

On the plus side, the UK is sketching out how it plans to end the lockdown. On the minus side, it’s going to take a long time to get back to normal. This, in a nutshell, is the problem facing the global economy and it is one reason why equity markets are not finding a straight line back to where they were pre-crisis.

Indices on mainland Europe are catching up with the losses sustained in London and New York today, having been shut Friday. The DAX retreated 3% on the open to take a look again at 10,500, whilst the FTSE 100 extended losses to trade about 20 points lower. Hong Kong turned sharply lower ahead of its GDP report.

Whilst monetary and fiscal stimulus sustained a strong rally through April – the best monthly gain for Wall Street since 1987 – it’s harder to see how it can continue to spur gains for equity markets. Moreover, US-China tensions are resurfacing as a result of the outbreak, which is weighing on sentiment. Donald Trump spoke of a ‘very conclusive’ report on China – the demand for reparations will grow, and trade will suffer as the easiest policy lever for the White House to pull. This is an election year so I’d expect Trump to beat on the Chinese as hard as he can without actually going to war. Trade Wars 2.0 will be worse than the original.

And as I pointed out in yesterday’s note, equity indices are showing signs of a potential reversal with the gravestone doji formations on the weekly candle charts looking ominous.

Warren Buffet doesn’t see anything worth investing in. Berkshire Hathaway has $137bn in cash but the Oracle of Omaha hasn’t found anything attractive, he said on Sunday’s shareholder meeting. His advice: buy an index fund and stop paying for advice.

In FX, today’s slate is rather bare but there are some European manufacturing PMIs likely to print at the low end. The US dollar is finding bid as risk appetite weakens, favouring further downside for major peers. EURUSD retreated further having bounced off the 100-day SMA just above 1.10 to find support around 1.09250. GBPUSD has further pulled away from 1.25 to 1.2460.

Front month WTI retreated further away from $20. CFTC figures show speculative long trades in WTI jumped 35% – the worry is traders are trying to pick this market and the physical market is still not able to catch up with the speculators. The move in speculative positioning and price action raises concerns about volatility in the front month contract heading into the rest of May.

BT Group shares dropped more than 3% on reports it’s looking to cut its dividend this week. Quite frankly they ought to have cut it months ago. I rehash what I said in January: Newish CEO Philip Jansen should have done a kitchen sink job and cut the dividend from the start. The cost of investment in 5G and fibre is crippling, despite the cutbacks and cost savings. Net debt ballooned to more than £18.2bn – up £7.2bn from March 31st 2019. How can BT justify paying over £1bn in dividends when it needs to sort this debt out, get a grip on the pension deficit and do the kind of capex needed for 5G and mass fibre rollout? Given the current environment, a dividend cut seems assured.

What to watch this week

NFP – Friday’s nonfarm payrolls release is likely to be a history-making event. Last month’s -701k didn’t reflect many days of lockdown, so the coming month’s print will be seismic. However, this is backward looking data – we know that in the last initial jobless claims have totalled around 30m in six weeks – the NFP number could be as high as 22m according to forecasts. The unemployment rate will soar to 16-17%. The main focus remains on exiting lockdown and finding a cure.

BOE – The Bank of England may well choose this meeting to expand its QE programme by another £200bn, but equally it may choose to sit it out and simply say that it stands ready to do more etc. The Bank will update forecasts in the latest Monetary Policy Report, with the main focus likely to be on how bad they think Q2 will be. Estimates vary, but NIESR said Thursday the contraction will be 15-25%.

RBA – The Australian dollar is our best risk proxy right now. The collapse in AUDJPY on Thursday back to 68.5 after it failed to break 70 was a proxy for equity market sentiment. We will wait to see whether the Reserve Bank of Australia meeting on Tuesday gives any fresh direction to AUD, however there is not going to be a change in policy.

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