Hedge funds sneak back into energy sector

New York

A FEW hedge fund managers have been tiptoeing back into the beaten-down energy sector.

While many investors, including Warren Buffett, were selling energy stocks in the final three months of 2014, several hedge funds sought to profit on the turmoil, regulatory filings showed on Tuesday. Third Point, the firm run by Daniel Loeb, acquired a sizable stake in the oil refinery company Phillips 66; while Leon Cooperman's Omega Advisors amassed a new position in Laredo Petroleum; and Viking Global Investors, led by Andreas Halvorsen, increased its stake in Cheniere Energy by several million shares.

At the same time, other hedge funds reduced their holdings of technology stocks, including Apple and Alibaba, which had recently attracted investors in droves.

These moves, by some of Wall Street's most prominent investors, were disclosed in filings with the Securities and Exchange Commission (SEC), providing a partial snapshot of hedge funds' holdings as at the end of the year. The filings, submitted by a Tuesday deadline, shed some light on which companies and sectors were attracting the affection - or the scepticism - of the so-called smart money.

Investing in energy in recent months has required a strong stomach. The price of a barrel of crude oil, after trading around US$100 in June, fell to about US$43 in January, putting pressure on a range of oil and gas companies and funds that invested heavily in energy stocks.

The filings show that Mr Buffett's Berkshire Hathaway sold its 41 million shares of Exxon Mobil during the fourth quarter, while Greenlight Capital, David Einhorn's hedge fund, sold its entire two million share stake in the British oil giant BP. Barry Rosenstein's Jana Partners sold its 3.4 million shares in Apache Corp, the oil and gas company.

To some hedge fund managers, the rout apparently provided an opportunity for bottom-fishing. Mr Loeb's Third Point acquired five million shares of Phillips 66, a stake worth US$384.5 million as at Tuesday. Omega Advisors, meanwhile, acquired 2.1 million shares of Laredo Petroleum and 652,500 shares of Sanchez Energy Corp. But at the same time, Omega sold about 29 per cent of its big stake in SandRidge Energy, ending the quarter with 32.2 million shares.

ValueAct Capital, an activist hedge fund, acquired big new positions in Halliburton and Baker Hughes, two oil field services companies that agreed to a US$34.6 billion merger in November. The two stakes, each worth more than US$900 million, could make ValueAct a forceful advocate for the deal, which will be subject to shareholder votes in March.

While it is far from certain that these energy bets will pay off, some stocks in the sector are showing signs of improvement. Fairholme Capital Management, the fund founded by Bruce Berkowitz, bought a stake in the oil and gas company Canadian Natural Resources, whose shares fell 20.5 per cent in the fourth quarter but are up 3.6 per cent so far this year. Similarly, Eton Park Capital Management, which was started by a Goldman Sachs alumnus, Eric Mindich, bought shares of the natural gas producer EQT. That company's stock fell 17.3 per cent in the fourth quarter but is up 7.8 per cent this year.

Some hedge funds showed caution in the technology sector. One longtime fan of Apple, Mr Einhorn, who once took the company to court over a plan to eliminate preferred shares, reduced Greenlight Capital's stake in Apple by about 6 per cent, to 8.6 million shares, which were worth more than US$1 billion as at Tuesday. Another hedge fund, Coatue Management, which focuses on technology, reduced its Apple holdings by about 15 per cent, to 8.9 million shares, as at the end of 2014.

Appaloosa Management, David Tepper's hedge fund, sold its entire 1.2 million share stake in Apple, as well as its holdings in Facebook and Chinese Internet giant Alibaba, which became a hedge fund darling after going public in September. Mr Tepper's move on Alibaba appears well-timed, since the stock fell this year after peaking in the fall. With Apple, however, Mr Tepper and his rivals have been confounded by the stock's rally so far this year.

These disclosures are limited in important ways. Backward-looking and static, they show only the holdings of United States-listed stocks at the end of the fourth quarter. And they do not include any short positions, or bets against particular stocks.

What is more, any apparent trends among the hedge funds fail to capture the diversity of the moves. Mr Loeb, for example, increased his fund's stake in Alibaba during the quarter, while Mr Einhorn acquired a new stake in Yahoo, an older technology giant. Greenlight Capital also bought 1.25 million shares of Green Dot, one of the nation's largest sellers of prepaid debit cards. This month, Green Dot, as previously announced by the company, stopped selling its popular MoneyPak prepaid product over concerns about it being misused by online swindlers. NYT