Fund managers make big bets on oil stocks

Date: Tuesday, August 17, 2010
Author: Svea Herbst-Bayliss and Aaron Pressman, Reuters

Top hedge fund managers went bargain hunting in the oil patch in the second quarter, buying shares whose prices had tumbled after BP's Gulf of Mexico well disaster and in the face of lower oil prices.

Top managers including Carl Icahn, Eric Mindich and Dinakar Singh, whose stock picks are closely watched in investment circles, added energy stocks to their holdings even as billions of gallons of oil gushed into the Gulf, according to quarterly securities reports filed on Monday.

Others stocking up on energy shares included David Einhorn, former Fidelity Investments star Jeff Vinik, the $22 billion Boston-based fund Adage Capital and SAC Capital Advisors LP, the hedge fund run by Steven Cohen.

Fund managers must say what U.S. listed equities they own within 45 days after the quarter ends.

Energy stocks ranked among the worst performers during a quarter that also featured the still unexplained stock market "flash crash" on May 6 and new jitters about a double-dip recession developing in the United States.

Still, top fund managers staked out the sector much like they did with financial companies earlier in the year.

For investors bold enough to jump into the energy sector while the Gulf oil spill was gushing and doubts swirled about the future of U.S. offshore oil drilling, the payoff has been swift and handsome.

In particular, BP's (BP.L) (BP.N) shares are up 28 percent since the end of the second quarter, after losing roughly half their value in the weeks that followed the explosion and sinking of the Deepwater Horizon drilling platform in the Gulf of Mexico in late April.

After building his energy holdings slowly at the start of the year, billionaire Carl Icahn picked up the pace, committing nearly $1 billion to the sector during the quarter.

Icahn also picked up shares of oil and gas producer Anadarko Petroleum (APC.N) and offshore drilling specialist Ensco Plc's (ESV.N) sponsored American Depository Receipts, according to documents submitted to the Securities and Exchange Commission on Monday.

Other companies that attracted interest from one or more hedge funds included drilling services specialist Baker Hughes (BHI.N) and oil services company Halliburton (HAL.N).

Mindich, whose skills at Goldman Sachs helped him raise a record $3 billion when he started his fund in 2004, bought both shares and call options in BP, and a variety of other companies in the sector: Diamond Offshore Drilling (DO.N), Forest Oil (FST.N), Marathon Oil (MRO.N), Plains Exploration & Production (PXP.N) and Suncor Energy (SU.TO).

Einhorn's Greenlight Capital bought just over 5 percent of Ensco's shares. In a letter to investors last month, Einhorn said the Gulf oil spill "should not materially impact (Ensco's) long-term potential."

Einhorn's other actions centered mostly on technology, where he boosted exposure to Microsoft Corp (MSFT.O) and Xerox Corp (XRX.N), and took a stake in Apple Inc (AAPL.O).

The forms managers filed on Monday include only U.S.-listed equity securities and related derivatives. Bonds, other securities and short positions are typically not disclosed. Managers may also omit U.S.-listed equities under certain circumstances or file some holdings on confidential filings.

Einhorn and John Paulson of the Paulson Funds were among the managers taking larger stakes in drugmaker Pfizer Inc (PFE.N).

Paulson> also raised a few eyebrows by picking up one million shares of Goldman Sachs Group (GS.N) in the second quarter.

Paulson's was the hedge fund at the heart of the SEC's civil fraud case against the Wall Street bank. In April, the SEC charged Goldman with failing to disclose that Paulson's fund had a hand in picking securities for a complex mortgage-related deal that the hedge fund was betting against.

Regulators did not charge the fund with any wrongdoing, but his investors became so nervous that he was forced to hold a series of conference calls to explain the matter.