's investing philosophy is based on making sector bets according
to his interpretation of the macroeconomic picture. The strategy
paid off well when he made $3.7 billion in 2007 shorting the
subprime mortgage market and another $5 billion in 2010 primarily
by betting on gold. Times have been less spectacular since then,
with his funds losing 36% in 2011 by being too early in
financials and returning 1% in 2012.
In the fourth quarter, Paulson adjusted his sector strategy. He
eased more out of financials and consumer cyclical stocks, and
made increases to his real estate and energy holdings, according
to GuruFocus' sector weightings.
In 2009 and 2010, Paulson thrust 40.3% of his portfolio into
financial services. His largest financial positions were in
stocks such as Citigroup (
), Bank of America (
) and JPMorgan (
). His recovery funds, heavily weighted in the banking and
insurance industries, performed well in 2010, gaining 24%.
Paulson expected the economy to mend in the near future, and
further enhance his gains:
"We believe the Paulson Recovery Funds are our best positioned
funds to benefit from the continued economic recovery in the
2011-2012 timeframe," he said in his 2010 letter.
Instead, the Financial Select Sector SPDR ETF (
), which is heavily weighted in bank stocks, lost approximately
20% that year.
Since then, Paulson has been reducing his exposure to the
financial services sector every quarter except one. Most
recently, he moved the weighting percentage from 8.5% in the
third quarter of 2009, to 7.4% in the fourth quarter of 2012 -
his smallest in almost four years.
His largest bank positions in the fourth quarter of 2012 are
Capital One Financial Corp. (
), Wells Fargo (
) and Popular Inc. (
), which each account for less than 1% of his portfolio,
respectively, though he has larger investments in insurance,
including Hartford Financial Services Group (
) and CNO Financial Group (
Vocal on his optimism for housing recently, Paulson seems most
interested in houses specifically, and increased the weight of
his investment in real estate stocks to 4.5%, his largest
exposure in over four years, from 0.5% in the third quarter of
Paulson gave his opinion on housing at the 92
Street Y in Manhattan in January. "This is probably the best time
in our lifetime to consider buying a house," he said, for several
reasons, NBC reported:
- Housing in a "strong recovery"
- Robust domestic energy market
- Use of credit picking up (credit cards, auto loans, mortgages)
- Stock market rally
In 2012, his Real Estate Recovery Fund was one of the few of his
funds to achieve a gain, with a 20% return for the year.
His largest new position in the real estate sector in the fourth
quarter was Realogy Holdings Corp. (
). He bought 13,302,344 shares of the company for $37 per share
on average, accounting for 3.4% of his portfolio.
Realogy Holdings is a real estate franchising company with
business brands and units such as Better Homes and Gardens Real
Estate, Century 21, Coldwell Bankers, and several others. The
company held its IPO in October 2012, with shares priced at $27
each. It has a $6.26 billion market cap, and its shares have
gained almost 26 percent since their debut, priced at $43.05 per
share Thursday afternoon.
Realogy's net revenue for the fourth quarter increased 30% year
over year to $1.2 billion, with a net loss of $292 million, after
$400 million in primarily non-cash IPO-related costs, and other
charges, and perceived a housing recovery in the works:
"The strength of the year, and in particular our strong fourth
quarter results, supports the growing consensus of a housing
recovery," said Richard A. Smith, Realogy's chairman, chief
executive officer and president. "The favorable housing trends we
experienced early in 2012 were evident in the fourth quarter, and
our first quarter 2013 closed sales volume and open contracts
indicate the continuation of the housing recovery."
Paulson's shift to energy was more pronounced, as he increased
his weighting in the sector from 1.3% in the third quarter to
10.7% of his portfolio in the fourth quarter of 2012, as he got
in on merger and acquisition activity in the industry. Paulson
did not speak on energy in his talk at the 92
Street Y in January, except to mention that he was bullish on the
He bought four new oil and gas companies, and increased his
position in one other, Nexen (
), in the fourth quarter, making it is largest holding of the
sector. He bought 19,445,000 shares of the company in the fourth
quarter for $25 per share on average, increasing his shareholding
to 24,495,000 shares. He started buying the stock in the third
With a $14.53 billion market cap, Nexen is an energy company with
plays in conventional oil and gas, oil sands and shale gas. The
company's stock leapt in July when it announced that it would be
acquired by CNOOC Ltd. (
He bought 12.8 million shares of his largest new buy, Plains
Exploration & Production Company (
) for $39 per share on average. The company's stock jumped in
December when the company announced it would be acquired by
Freeport McMoRan Copper & Gold Inc. (
). Paulson also bought 9 million shares of Freeport McMoRan in
the fourth quarter, which will acquire McMoRan Exploration (
), a company Paulson also bought 15.6 million shares of.
Combined, the company will be a large U.S.-based natural resource
company with a broad portfolio of mineral assets, oil and gas
resources and room for growth in production, as well as an
enterprise value of $60 million.
also got in on the deal, buying PXP and MMR stock in the fourth
Paulson's other new energy stocks in the fourth quarter were
Pioneer Natural Resources Company (
) and Murphy Oil Corporation (
The International Energy Agency expects the U.S. to be the top
oil producer in the world by 2020. Since the start of the year,
the Energy Select Sector SPDR ETF (XLE) has gained 8%, compared
to 5.62% for the S&P 500.
See John Paulson's updated portfolio here. Also check out the
Undervalued Stocks, Top Growth Companies, and High Yield stocks
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