He Made the Trade of the Century. Now What? John Paulson’s Portfolio Includes ETF’s

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May 29, 2009 11:59am ETF BASIC NEWS NYSE:GDX

john-paulsonJohn Paulson had expertise in merger arbitrage, so betting against the housing bubble was met with extreme skepticism when he tried to raise money for his Credit Opportunities fund in 2005. The original amount raised was only $150 million, mainly from European investors. The fund was invested in cheap — at the time — credit-default swaps on mortgage bonds, and later, in outright short positions of the various ABX indexes, which track the performance of different vintages of mortgage securities.

The fund also sold short risky slices of CDOs, which in the end completely evaporated in value. In a CDO structure, profits trickle down from the top, while losses on mortgages are first absorbed by the lower-rated tranches. If there are large losses — as there were in this case — the lower-rated tranches completely disappear as the losses are being absorbed.

The end result was that the Credit Opportunities fund earned 590% in 2007 and the Credit Opportunities II fund, started in January 2007, earned 350%. Due to the incentive structure of the hedge fund industry, Mr. Paulson earned $3.7 billion in the process, the largest single-year payout by a hedge fund manager.

With that as background, let’s examine the stocks Paulson is buying now.

Billionaire’s portfolio
The big bet in John Paulson’s portfolio is impossible to miss: gold. According to the most recent SEC filings, here are his top holdings:

Top 15 Holdings
SPDR Gold Trust (NYSE: GLD) 30.37%
Wyeth (NYSE: WYE) 13.96%
Rohm and Haas  13.44%
Boston Scientific (NYSE: BSX) 8.40%
Market Vectors Gold Miners ETF (NYSE: GDX) 6.81%
Kinross Gold (NYSE: KGC) 5.87%
Philip Morris International (NYSE: PM) 3.42%
PetroCanada (NYSE: PCZ) 2.96%
Schering-Plough (NYSE: SGP) 2.26%
Mirant (NYSE: MIR) 2.22%
Gold Fields (NYSE: GFI) 2.21%
JPMorgan Chase (NYSE: JPM) 1.65%
Anglogold Ashanti (NYSE: AU) 1.15%
St. Jude Medical (NYSE: STJ) 0.91%
Embarq (NYSE: EQ) 0.81%

Full Story: https://news.fidelity.com/news/news.jhtml?articleid=200905291104MTLYFOOLFINANCE__rx19401&NEWSTITLE=He+Made+the+Trade+of+the+Century.+Now+What%3F&IMG=N&cat=Opinion&srcIndex=1

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