Blue Mountain Buys KO, CL, CVS and CLOs, Shorts XTA

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Blue Mountain Capital Management’s total assets under management have touched $9.5 billion in the second quarter of 2012. The Q2 investor letter states that BM Credit Alternatives Master Fund was up 10.10% year to date.

Blue Mountain Buys KO, CL, CVS and CLOs, Shorts XTA

Blue Mountain’s Equity Alternatives (BMEA) Fund, that capitalizes on volatility, distortions, and mispricings to drive gains in the market, was founded in March 2006. During the period of Apr-June 2012, the total absolute return assets under management rose from $6.5 billion in April, to $7.4 billion in June. The Net Asset Value increased from $295 million to $342 million during this quarter. The net monthly return on BMEA increased from 0.10% in April to 0.06% in June. The net quarterly return on BMEA for this second quarter came up to 0.77%. Blue Mountain’s equity fund’s year-to-date returns equal 6.63%.

Sources of Profits in Q2

BM gained 1.23% of returns in Q2 from “off-the-run index arbitrage,” relative value index trading,  and volatility trades. It also earned profits from its collateralized loan obligations (CLOs), short side trading in metals and mining in Xstrata PLC (LON:XTA), and long positions in stressed and distressed credits.

The fund generated half of its profits from Volatility strategies, on both the long and short side of investments. Blue Mountain bought volatility on The Coca-Cola Company (NYSE:KO), The Procter & Gamble Company (NYSE:PG),  Colgate-Palmolive Company (NYSE:CL), and CVS Caremark Corporation (NYSE:CVS and sold off on ETF (NYSEARCA:XLP) during the quarter.

In terms of dividends, the majority gains were generated from the European market. The fund also suffered losses over the dividend curve. The fund lost 0.13% on portfolio hedges in Q2.

During this quarter, the fund initiated long positions on financial companies that were sensitive to market swings originating in China. The fund continues to have long positions in Japan, where falling credit quality and weighted balance sheets have consistently pressurized banks in Japan.

Future Positions

For the next quarter, the fund is set on maintaining a short position on the US market, albeit with discomfort caused by the slow growth and unemployment, and long positions in other markets, like Europe and China. The letter comments on the present ambiguity over the level of impact that rising commodity prices in US (as the result drought) will have on the global market, and/or increase profitability in the upcoming quarters.

Blue Mountain reportedly cashed in on JPMorgan’s(NYSE:JPM) London Whale fiasco, earning $30 million by hedging bets against the bank in May of this year. The Q2 investor letter does not mention any information related to these JPM profits. BlueCrest Capital Management was co-founded by Andrew Feldstein, a former executive at JPM, in 2000. Later, BlueMountain Capital Management was established in 2003, and now has offices in  New York and London .

 BlueMountain declined to comment on the letter. The hedge fund’s PR firm, Dukas Public Relations, also declined to comment.


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