Are Hedge Funds Ready for a Rebound in Gold Miners?

gold

Gold recently posted its first annual loss in more than a decade and caused some investors to question their strategies. However, some popular hedge funds remained interested in the precious metal and even positioned themselves for a rebound.

Many institutional investment managers recently filed their mandatory 13-F with the Securities and Exchange Commission. The filing is a quarterly report of equity holdings required by managers that oversee more than $100 million in qualifying assets and must be filed within 45 days of the end of each quarter. The 13-F provides a glance at what firms did in the previous quarter, but investors should keep in mind that hedging and trading strategies of each fund are still unknown.

Let’s take a look at how popular hedge funds invested in gold names during the fourth quarter of 2014.

Billionaire fund manager John Paulson is known for betting against subprime mortgages during the housing bubble, but he is also a vocal advocate for gold. He once said in a letter to investors, “By the time inflation becomes evident, gold will probably have moved, which implies that now is the time to build a position in gold.” He reaffirmed his belief that gold is a good hedge against inflation last year. Nonetheless, Paulson recently reduced his exposure to gold miners.

Paulson & Co. held 31.4 million shares of AngloGold Ashanti (NYSE:AU), worth $368.2 million at the end of the fourth quarter, down 11,000 shares from the previous quarter. The firm also reduced its position in Freeport-McMoRan Copper & Gold (NYSE:FCX) slightly to 15.5 million shares, worth $585 million. Paulson did not change his stakes in Agnico Eagle Mines (NYSE:AEM), Gold Fields (NYSE:GFI), or IAMGOLD (NYSE:IAG).

Despite the small reductions in the gold miners, Paulson is still the biggest player in the SPDR Gold Trust (NYSE:GLD) — the most popular exchange-traded gold product in the market. At the end of the fourth quarter, Paulson held 10.2 million shares of the ETF, worth about $1.2 billion.

George Soros, the billionaire hedge fund manager known for breaking the Bank of England, once claimed that the “ultimate asset bubble is gold.” While the price of gold has fallen dramatically over the past couple years, his management team maintains exposure to the precious metal.

Soros Management added a new stake in Barrick Gold (NYSE:ABX) of 6.3 million shares during the final three months of 2013, worth $111.1 million. Furthermore, the firm has a call option position in the miner worth $35.6 million. Soros Management also increased its stake in the Market Vectors Jr. Gold Miners ETF (NYSE:GDXJ) to 571,076 shares ($17.7 million), compared to 300,000 shares ($12.2 million) in the prior quarter. Meanwhile, the firm held 970,344 shares in the Market Vectors Gold Miners ETF (NYSE:GDX) and a new call option position worth $25.3 million. Interestingly, Soros Management more than doubled its bearish bet on the S&P 500 to $1.3 billion.

Greenlight Capital’s David Einhorn once wrote a colorful piece criticizing the Federal Reserve’s monetary policy, relating the central bank to force-feeding someone too many jelly donuts in hopes of a sugar rush. With the Fed maintaining record low interest rates, Einhorn said, “As a result, I will keep a substantial long exposure to gold, which serves as a jelly donut antidote for my portfolio.” While it is unknown how large of a physical bullion position Einhorn holds, he continued to keep a large position in the Market Vectors Gold Miners ETF. At the end of December, Greenlight Capital held nearly 8.8 million shares of the ETF, worth $185.9 million.

Third Point, the hedge fund founded by Daniel S. Loeb, sold its entire stake in the SPDR Gold Trust at the end of the second quarter. However, during the fourth quarter, the firm increased its stake for the second consecutive quarter in what could be considered a hard asset or wealth effect play. Third Point held 6.35 million shares of Sotheby’s at the end of December, compared to 6.15 million shares at the end of September. Sotheby’s is a world-known auctioneer of fine art and jewelry.

Appaloosa Management, the hedge fund founded by David Teppter, trimmed its stake in Freeport-McMoRan Copper & Gold from 1.8 million shares to 1.1 million shares. However, Leon Cooperman’s firm raised its stake in the miner slightly, to 2.9 million shares, worth $109.5 million.

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Disclosure: Long EXK, HL, PHYS