HOW TO INVEST LIKE A HEDGE FUND BILLIONAIRE HOW TO INVEST LIKE A HEDGE FUND BILLIONAIRE 7 HEDGE FUND
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THE PAST SEVERAL YEARS SINCE THE ECONOMIC RECESSION OF 2008 HAVE BROUGHT ABOUT MANY CHANGES IN THE MARKET – INCLUDING THE CLOSING OF FLAGSHIP FUNDS BY U.S.-BASED HEDGE FUNDS.
Due to quantitative easing, bank deleveraging and a slowdown in corporate deal-making, many traditionally successful strategies used by hedge funds have become much less profitable. And in order to keep their records of accomplishment looking stellar, numerous funds are closing their doors to new clients.
SO HOW CAN WE MAKE HEDGE FUND-LIKE RETURNS?
Simple. By putting your money where hedge fund managers are putting theirs.
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REMOVING THE VEIL You see, hedge funds protect their trading strategies in a similar fashion to a mother bear protecting her cubs. In other words, they keep them pretty well under wraps.
However, a few weeks after each quarter, hedge funds (and other big investors) are required to file a Form 13F with the U.S. Securities and Exchange Commission (SEC) to disclose their long equity positions as of the end of the previous quarter.
These forms are publicly available (if you know where to look) and can provide an inside view on how the fund has been trading.
And after digging through pages upon pages of data, we’ve identified an energy investing strategy that’s used by many of the big funds to return huge profits.
In fact, by putting together a portfolio of just 10 of these plays, you would have outperformed the S&P 500 by a solid 7% this year alone.
Now, let’s take a closer look at these top 10 energy investments so you can start investing like a hedge fund billionaire today…
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HEDGE FUND INVESTMENT #10: HESS CORPORATION (HES) Batting leadoff in this list, Hess Corp., recently acquiesced to activist investor Elliott Management’s requests to spin off its downstream operations, such as refineries and service stations. After the move, Hess is now in a much better position to improve the efficiency of its exploration and production operations. But that’s only part of the reason Hess is rounding out the top five hedge fund energy picks.
This Fortune 100 company experienced earnings growth of nearly 160% in Q2 of 2013, compared to the same quarter the previous year, according to data provided by Thomson Reuters. And analysts expect the company to see capital appreciation of almost 10% by the end of 2014 – and perhaps as much as 31% if the highest analyst price target of $130 is reached.
HEDGE FUND INVESTMENT #9: CHEVRON CORPORATION (CVX) Ranking ninth in hedge fund energy investments, Chevron is the only part of what once was John D. Rockefeller’s Standard Oil to remain a hedge fund favorite. It’s also the only supermajor on this list. Engaging in both the upstream and downstream segments of the energy markets, Chevron is involved in everything from exploration, development, and production of crude oil and natural gas; to transportation, processing, storage, and marketing. It’s even involved with the refining of crude oil into energy fuels and petrochemicals.
Practically a one-stop shop for all your energy needs, it’s no wonder this piece of Rockefeller’s monopoly is still bolstering the balance sheets of hedge funds..
HEDGE FUND INVESTMENT #8: EOG RESOURCES (EOG) EOG Resources is a small (but rapidly growing) oil and gas producer based in Houston, Texas. This year, numerous hedge funds got on board, while others, like Renaissance Technologies, increased pre-existing positions in the company.
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Year to date, the common stock of this up-and-comer has witnessed gains of more than 27%.
HEDGE FUND INVESTMENT #7: OCCIDENTAL PETROLEUM (OXY) Coming in at number seven on the list of hedge fund favorites is Occidental Petroleum. This major exploration and production company boasts proven reserves of 3,296 million barrels of oil equivalent (BOE). The company also provides growth opportunities by selling basic chemicals and vinyls, as well as offering transportation and storage services to other oil producers.
OXY increased its cash reserves by over 93% in 2013. And the company has seen its share price climb almost 10% year to date, beating the S&P 500 Index so far this year.
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Don’t expect that trend to stop anytime soon, either. Analysts predict an additional 10% growth in shares before the end of 2014.
HEDGE FUND INVESTMENT #6: WILLIAMS COMPANIES (WMB) The No. 6 company on the list of hedge fund energy favorites operates as an energy infrastructure company.
Translation: It owns and operates pipelines through which natural gas and crude oil are transported from the fields to the refineries.
On top of that, they also offer other midstream services such as storage, treatment, and deepwater production handling.
Williams companies currently owns interests in or fully operates 15,000 miles of interstate gas pipelines, 1,000 miles of natural gas liquids (NGLs) transportation pipelines, and 10,000 miles of oil and gas gathering pipelines.
With their pipelines crisscrossing the map like a nation-sized spider web, it’s no wonder why Williams Companies has caught and held the attention of the hedge fund managers.
HEDGE FUND INVESTMENT #5: MARATHON PETROLEUM CORPORATION (MPC) Coming in halfway down the list (or halfway up it, depending on your perspective), Marathon is another one-stop shop…
The company operates in three segments – one refines crude oil and other feed stocks at the seven refineries owned by Marathon; the second markets these refined products (such as gasoline, propane, and heavy fuel oil) through convenience stores and filling stations owned by Marathon; the third operates about 8,300 miles of pipelines through which crude oil and other feed stocks are transported to the companies refineries.
With all of their bases covered and little need for any partnerships that might dilute earnings, Marathon should continue to grow and should also continue to be a favorite of hedge fund managers for years to come.
HEDGE FUND INVESTMENT #4: SCHLUMBERGER (SLB) An oil-field services company that caught the eyes of hedge fund managers this year is Schlumberger Limited.
With a market cap of more than $100 billion, SLB is the big sister to Halliburton (another services company that made this list).
Schlumberger’s share price appreciated by more than 21% so far this year. And it grabbed the attention of 63 hedge funds, including billionaire Steven A. Cohen’s embattled SAC Capital Advisors… and the largest asset manager in the world, BlackRock, which reported holding long positions of almost 37 million shares last year.
And if that wasn’t enough, check out the following chart showing insider transactions reported in 2013. Insiders know things we don’t, and they’ve been buying in droves.
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HEDGE FUND INVESTMENT #3: VALERO ENERGY CORPORATION (VLO) With a foot in both the traditional fuel world (that of petroleum products) and the alternative energy markets, as well, the No. 3 hedge fund energy pick is an independent petroleum- and ethanol-refining and marketing company.
Not only does it refine its own petroleum products (and make ethanol-based products, too), but like Marathon, Valero also owns its own convenience stores and filling stations where it can market its refined products directly to end users – like you and me.
The stock is already up almost 10% so far this year, and, if analysts are correct, could have another 39% gain to go before the close of the year.
On top of stellar stock performance, Valero has been steadily growing its stockpile of cash since late 2011 and is ready to jump on any opportunities that come knocking in the near future.
With all that going for it, it’s no surprise that Valero Energy starts off the top three hedge fund energy picks this year.
HEDGE FUND INVESTMENT #2: HALLIBURTON (HAL) Although not directly involved in exploration and production, Halliburton supplies the necessary equipment and services to all of the key players in the oil and gas industry.
It provides all the crucial components for a large-scale exploration and production operation. This includes building and fixing rigs, renting specialty tools, and
providing the fluids used by major drillers for fracking the hard-to-reach reserves from the rocks in
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which the deposits lie.
The company has already experienced a 36% increase in share price year to date, and analysts predict the number to climb another 20% by the end of 2014.
Brave Warrior Capital may be expecting even more growth, considering that it practically tripled its holdings in the company to 4.4 million shares in Q2 of 2013 alone.
HEDGE FUND INVESTMENT #1: ANADARKO PETROLEUM (APC) Topping off the list of our favorite hedge fund energy picks is Texas-based Anadarko Petroleum.
Sixty-five funds disclosed long positions in this up-and-coming oil exploration and production company.
That includes the multi-billion-dollar fund, Millennium Management, which raised its stake by over 40% recently.
APC is a hedge fund favorite for all the right reason