Several prominent hedge funds turned less bullish on U.S. stocks in the first quarter.
According to an analysis of first-quarter 13F filings made public in recent days, firms with the latitude to invest in any financial market — including macro or multistrategy managers, family offices managed by one-time macro mavens, and others well known for their eclectic investment styles — reported sharp declines in their U.S. common stock portfolio in the first quarter, compared with the prior three-month period. (This doesn’t include the value of put and call options.)
Yes, some of the reduction reflects a decline in the value of the stocks in their portfolio amid the wider sharp decline in U.S. stocks. And it’s possible that the firms sold stocks to meet year-end redemptions. But in most cases, it likely means that these managers decided to reduce their exposure to U.S. stocks in general and deployed the capital elsewhere.
For example, in just three months, Dan Loeb’s Third Point nearly halved the size of its U.S. equity portfolio to about $7.7 billion.
“We adopted a significantly more defensive posture in the portfolio during the first quarter and in April, reflecting our concerns about valuations in the current interest rate environment, geopolitical uncertainty, and emerging weakness in important global economies,” Loeb told clients in his first-quarter letter. “Today, our net exposure is lower and buying power higher than at any time during the last 10 years.”
Third Point added that it had exited several large equity positions and trimmed exposure to and substantially hedged its second-largest and most volatile position, SentinelOne. According to its first-quarter 13F, Third Point fully unloaded its stakes in Google parent Alphabet and online lending marketplace Upstart Holdings.
Third Point also has a sizable credit portfolio and makes macro and private investments.
David Tepper’s Appaloosa Management also reported a big reduction in the value of its U.S. stock portfolio. It held about $2.5 billion in the portfolio at the end of the first quarter, down nearly 40 percent from year-end. The portfolio was also down more than 50 percent from the first quarter of 2021.
At the end of the first quarter, FAANG favorites Alphabet, Amazon.com, and Facebook parent Meta Platforms combined to account for roughly one-third of the firm’s U.S. stock portfolio, while retailer Macy’s ranked fourth, accounting for another 7.7 percent of assets. In the first quarter, Appaloosa cut its positions in six of its seven largest holdings, withthe exception being e-commerce giant Amazon.
Appaloosa managed a total of $13.1 billion at year-end.
Stanley Druckenmiller’s Duquesne Family Office reported nearly $2.2 billion in U.S. common stock assets as of the end of the first quarter. This was down a little more than 13 percent from year-end, which could mostly reflect a decline in the value of the portfolio.
The firm is also down about 44 percent from the first quarter of 2021 and is currently sitting at its lowest level since the fourth quarter of 2018, according to an analysis of Duquesne’s quarterly 13F filings.
Coupang, the embattled South Korean e-commerce company, is clearly the macro legend’s largest long, accounting for nearly 15 percent of the portfolio’s common stocks after the firm boosted the stake by 9 percent in the period.
In the first quarter, Duquesne also fully unloaded two top-seven holdings: cyber security company Palo Alto Networks, and online used car company Carvana.
Seth Klarman’s The Baupost Group reported $9.3 billion in its U.S. equity portfolio at the end of the first quarter. This was down about 8 percent from the prior quarter and down nearly 15 percent from the end of the third quarter.
Baupost is a value-oriented firm that seeks undervalued investments with catalysts that can help them realize full value. It favors what it deems to be ignored or very complex assets, mostly in distressed debt, commercial real estate, mortgages, and equities.
Altogether, public equities accounted for 43 percent of assets at year-end, according to the firm’s fourth-quarter letter, obtained earlier by Institutional Investor.
Element Capital Management, meanwhile, reported just $200 million in U.S. equities at the end of the first quarter, down nearly 90 percent from its year-end figure of $1.554 billion. But even that number was very low, given the fact that the macro firm headed by Jeffrey Talpins had $15 billion under management as of October, according to an earlier Bloomberg report.
There was one major exception to this trend.
Bridgewater Associates, the world’s largest hedge fund firm, reported a 44 percent increase in its U.S. stock portfolio, to $24.8 billion as of the end of the first quarter. This represented roughly 17 percent of the macro firm’s $150 billion in assets at year-end.
Most of the firm’s U.S. equity assets are invested in single company stocks, compared with a few years ago, when broad-based exchange-traded funds dominated the portfolio.
