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Interesting Article...

THURSDAY, AUGUST 13, 2009
INSIDE SCOOP
Hedge-Fund Star Is Going for Gold
By NAUREEN S. MALIK |

John Paulson recently raised his stake in miner AngloGold Ashanti. But also he's bullish on other yellow-metal plays.

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HEDGE-FUND SUPERSTAR John Paulson made a killing over the previous two years betting against subprime mortgages and financial stocks.

But while he is going long these days in a variety of stocks, including bank stocks like Bank of America (BAC), he clearly is showing a particular interest in gold.

During the second quarter, Paulson & Co. bought 39.9 million American depositary receipts of South African-based AngloGold Ashanti (ticker: AU), increasing its stake to 42.86 million shares, or 11.99%. This stake was valued at $1.57 billion as of June 30.

The fund held 2.9 million AngloGold shares valued at $108 million at the end of the first quarter. Ben Silverman, director of research at InsiderScore.com, notes that the hedge fund purchased this initial stake directly from the company.

AngloGold is Paulson & Co.'s fourth-largest holding by value according to the Securities and Exchange Commission filing, after the SPDR Gold Trust (GLD), valued at $2.87 billion; Bank of America, valued at $2.2 billion; and Wyeth (WYE), valued at $2.19 billion. (The fund bought 168 million Bank of America shares in the second quarter.)

Certainly Paulson's purchase in Bank of America is an eye-popping reversal from the investor that raked in profits of more than $17 billion in 2007 and 2008 by betting against subprime mortgages and financial shares, according to The Wall Street Journal.

Even so, "the main theme in his portfolio seems to be gold," and that's mainly as a hedge against rising inflation, says Silverman.

"We saw a number of hedge-fund managers doing that in the first quarter and undoubtedly we will see more" once more funds submit their quarterly reports, Silverman says.

And in the first six months of the year, Paulson seems to have greater exposure to the gold play relative to other funds, he adds.

At the end of 2008, the hedge fund had a single investment in gold: 28.38 million shares of Kinross Gold (KGC) that were at the time valued at $525.9 million.

During the first three months of 2009, Paulson & Co. increased the Kinross holdings to 30.78 million shares and bought 31.5 million shares of SPDR Gold Trust and 18.3 million shares of Gold Fields (GFI).

These investments along with the initial stake in AngloGold were valued at $3.7 billion as of March 31. The value of Paulson & Co.'s gold investments grew to $5.27 billion in the second quarter and are now valued at $5.47 billion based on today's closing market prices.

As a passive 13G investor -- as opposed to an activist 13D investor -- Paulson does not have to disclose the transaction prices or dates. The SEC filings only indicate how much the investments were valued at the end of a quarter.

Paulson & Co. held 38 securities valued at $17.1 billion at the end of the second quarter, up from investments in 26 securities valued at $9.4 billion the previous quarter.

The investment in the SPDR Gold Trust is a broad bet on gold while the other names represent individual opportunities.

AngloGold, for instance, is the world's third-largest gold producer with 4.98 million ounces in 2008, representing 7% of global production. It has operations in the U.S., Brazil, Argentina various African countries, Australia and Tanzania.

Paulson's investment looks timely considering that AngloGold's second-quarter earnings reported at the end of July widely beat analyst estimates. That was the first quarter the company has surprised on the upside after a year of disappointing results.

Unlike investors that are known for certain strategies, such as Warren Buffett's appetite for long-term value plays, Silverman says that Paulson's strategy is elusive.

That's why it's hard to follow his cues on financial stocks. There is a time lag of more than 40 days from when a quarter ends and a fund has to report its holdings with the SEC. Market conditions have changed but Silverman says Paulson's move to continue building his exposure to gold appears to be a more reliable indicator of his outlook.

Still, knowledge that Paulson is investing in a stock is enough to add fire to shares. Bank of America and AngloGold gained 6.7% and 6%, respectively, during trading on Thursday.