John Paulson updated investors of Paulson & Co Inc. on the latest in investments for the month of July 2012. The update was covered by Kelly Bit for Bloomberg news, and we have further information in a letter obtained by ValueWalk.
The major highlight in the fund’s performance was the Credit fund, which was up by 0.96 percent. While Gold and Merger also gave positive returns of 0.66 and 0.22 percent. Paulson’s Advantage and Recovery funds were down by 1.61 percent and 0.75 percent respectively. We mentioned in the roundup of SEC filing that Paulson had increased exposure in SPDR Gold Trust (ETF) (NYSEARCA:GLD) during Q2 2012, the investment now makes up 28 percent of the fund’s portfolio.
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Advantage and Gold Fund
Paulson’s Advantage hedge fund has not been doing well for a while now, as it was down 50 percent for the last year and again lost by 10 percent in the first half of 2012. The investor letter emphasizes that the Merger and Recovery funds make up 60 percent of total assets under management, and these gave overall positive returns year to date, while the Gold and Advantage funds naturally take less than 40 percent of total, and have been negative on a year to date basis, so far. On the YTD scale the Advantage Plus is down 18.17 percent, while the Paulson Advantage Ltd is down 13 percent as of July 2012.
The letter expresses Paulson’s belief that the fund will start to recover from its dry spell once the high earnings and low stock valuation balances out in the Gold industry.,
Merger, Credit and Recovery Fund
Paulson’s Recovery fund is up 3.8 percent as of the month of July, while the Merger Arbitrage is up 4.5 percent on average (on Enhanced and others), Credit was up 3.8 percent on a year to date scale. The letter states that the gains have come from long event positions. The Recovery fund mainly comprises of investments in the financial sector and real estate, like housing and hotels. The Merger Arbitrage investments fall in the Enhanced funds, which bet on mergers, spinoffs and bankruptcies. The Credit fund made historical profit off hedges on US mortgage market back in 2007.
Paulson is predictably wary of Euro’s fate amid the crisis that is engulfing many of the major European economies, therefore the fund has reduced exposure in all of its funds, except Gold, during this year. Meanwhile Paulson expects to gain profits through newly added short positions and some hedges. Despite of a long spell of underperformance, the fund still believes that it is well positioned to take on any major or minor market swings.