Dan Loeb's Third Point was the clear hedge fund standout in a horrible year for the industry as almost nine out of 10 managers underperformed the S&P 500. Omega Advisors' Leon Cooperman also scored big.
Loeb - once better known for his acerbic letters to CEOs - used an activist position in Yahoo and the contrarian buying of Greek bonds to drive the firm's flagship fund to a 21 percent gain in 2012. The firm's more-leveraged Ultra fund posted an even bigger 34 percent return.
"Among his many talents, the one that I appreciate in Dan is his adaptability and ability to learn and evolve," said SkyBridge Capital's Anthony Scaramucci, who holds one of the largest gathering of hedge fund investors every year in Las Vegas. (Loeb is a speaker.) "This is the main reason in my mind why he has become one of the world's greatest investors."
As Loeb was using methods not easily accessible to the regular investor other managers crowded into Apple and gold . This strategy did not serve them well.
Eighty-eight percent of hedge funds were trailing the S&P 500 as of Dec. 21, according to a new report by Goldman Sachs. The average return was 8 percent, according to Goldman, as the S&P 500 notched a 13 percent gain in 2012. The benchmark rallied further last week, posting a five-year high.
However, it's doubtful some of your more notable hedge fund investors were cheering. Gold fell last week and its 2012 underperformance (along with the bullion stocks) is one reason why John Paulson's hedge fund finished 2012 near the bottom of the heap.
The Paulson Advantage Plus Fund - which uses leverage - was the third worst fund among the universe of funds tracked by HSBC. (Those numbers are not yet final.) That's a list Paulson once lorded over after scoring big betting against securities tied to housing crisis.
Gold and Apple's fourth-quarter rollover weighed on David Einhorn's Greenlight Capital, which finished 2012 with an 8 percent return, according to Reuters. About 800 hedge funds and mutual funds counted Apple among their top 10 holdings at the end of the third quarter, according to Insiderscore.com.
Loeb ousted Yahoo's CEO Scott Thompson in May after discovering some discrepancies with the executive's resume. After landing board seats, installing Google's Marissa Mayer as CEO and the purchase of more shares, Loeb turned Yahoo into one of his biggest winners.
The manager stepped into the lion's den that was the euro crisis and purchased Greek government bonds when they were yielding more than 25 percent. That move turned out to be his single biggest winner of the year.
Going into 2013, Third Point's top holdings are Yahoo, American International Group, and gold, along with an activist position in Murphy Oil.
The very biggest winners among hedge funds were those that bet on a comeback in mortgage securities that collapsed during the housing crisis. Pine River Capital Management had two funds that posted 30 percent returns in 2012 because of these holdings, according to data by HSBC.
One would be remiss without mentioning Omega's Leon Cooperman, whose fund had a net return of 26 percent in 2012. The legend did it through old-fashioned stock picking with AIG, SLM , and Sprint Nextel among his biggest winners for the year. For 2013, Cooperman is betting on stocks such as Qualcomm and Google.
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