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Omar Venerio
Omar Venerio
Articles (1439) 

Paul Tudor Jones Grows Bearish on U.S. and Emerging Stock Markets

Among biggest moves was 138% increase in ETF holding

March 28, 2017 | About:

Paul Tudor Jones (Trades, Portfolio)' Tudor Investment Corp. disclosed an equity portfolio valued at some $3.88 billion at the end of the reporting quarter ending Dec. 31, 2016 and a top 10 concentration of 44.65%.

The equity portfolio is mainly invested in ETF and options (40%), financial services (14%), consumer cyclical (12%) and industrials (9%) stocks. The filing revealed that at the end of December, the fund had added 417 new positions to its equity portfolio, added 430 existing positions and sold out 462 positions.

Among the holdings that Jones eliminated from previous 13-F fillings are iShares MSCI Emerging Index Fund (EEM), LinkedIn Corp. Class A (NYSE:LNKD), ITC Holdings Corp., Alliance Data Systems Corp. (NYSE:ADS) and Facebook Inc. Class A (NASDAQ:FB). The active trader has sold out all the existing positions on those.

For example, a clear bearish sentiment invaded hedge funds on iShares MSCI Emerging Index Fund in the last trimester of the year. Pioneer Investments (Trades, Portfolio), Stanley Druckenmiller (Trades, Portfolio), George Soros (Trades, Portfolio) and Steven Cohen (Trades, Portfolio) also sold out the ETF while Caxton Associates (Trades, Portfolio) reduced 87.91% its position. Other reductions came from Ray Dalio (Trades, Portfolio) (-1.87%) and Jim Simons (Trades, Portfolio) (-2.90%).

The volatility in the market made some investors hedge using options. Let´s concentrate now on one of Tudor Investment's biggest moves during the fourth quarter.

In SPDR S&P 500 (SPY), the fund is long by 895,156 shares. The value of the holding amounts to $200.1 million. In the quarter, the ETF gained 4.12%, which is almost half the performance in the entire year (9.7%). The trader guru has increased his position by 138% (518,847 shares).

On the other hand, the successful billionaire trader invested in bearish SPDR S&P 500 put options, 4.07 million shares (49%) worth $909.4 million and almost 23.5% of the portfolio. A put option is an agreement that gives an investor the right, but not the obligation, to sell the stock at a specified price within a certain period. It gives the investor the right to sell an asset and profit when it decreases in price. Moreover, and in the same direction of betting, the hedge fund manager has reduced his call options by 55% to 1.4 million shares. Probably, the strategy was somewhat funding his put options with the money collected from the sale of call options. To sum up, the investor is bearish overall and desires a sharp temporary decline in the underlying ETF's price. The long put option added to a long stock position downside protection. But if it falls below the strike, the investor has the benefit of this downside shock.

So now, let´s see the evolution of price and reach some conclusion:

The ETF is trading close to its 52-week high with the last closing price of $233.62. The ETF's performance on a year-to-date basis is 4.51%. If this scenario prevails, which seems to be the worst for Jones, an alternative should be to keep the stock and sell the put. The sale should recoup some of the short bet and may even result in a profit.

Furthermore, two gurus had put option positions in the last quarter. Ken Griffin’s Citadel Investment Group and Don Morgan’s Brigade Capital have positions with 36.18 million and 7.7 million shares. Contrary to them, Jim Chanos (Trades, Portfolio) upped his stake in call options by 11,477% to 171,800 call option shares.

Disclosure: Author holds no position in any stocks mentioned.

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About the author:

Omar Venerio
Omar Venerio is a capital markets, derivatives, corporate finance and financial management professor. He is passionate about the stock market and providing independent fundamental research and hedge fund and insider trading-focused investigation.

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