By Pete Gallo
Someone let the bears loose at Eric Mindich's Eton Park Capital Management—at least if its gold holdings are any indication of Mindich's view on the future.
The firm's most recent filings with the Securities and Exchange Commission show that roughly 10% of Eton Park's 66 portfolio picks are targeted at precious metals stocks and related exchange-traded funds. That's great news for Eton Park since gold, on October 12, hit an all-time high of $1,064 per ounce (up 20% for the year), against the backdrop of a tanking U.S. dollar and inflation fears.
Although it's a tactic that has never worked so well, hedging with gold is hardly a new strategy. The play has gotten more traction this year given the U.S.'s print-on-demand monetary policy that now has some G-8 members talking openly about dumping the greenback as the world's reserve currency. Ouch!
One doubts Mindich's team wants to see the dollar die, although exaggerated rumors of its impending reserve-currency demise have been great for the fund's precious metal portfolio picks.
For instance, Eton Park owns 381,000 shares of AngloGold Ashanti, the South African mining company whose stock soared to $45.95 (on October 13), up from $23.15 at the start of the year. Clearly the hedge fund team realizes the risk of a potential gold-market bubble or at the very least doesn't want its exposure to the sector to skyrocket. And on that note, Eton Park has done some significant profit-taking from its AngloGold Ashanti position, unloading some 387,000 shares of the original 768,000 it started 2009 with, according to SEC filings.
Mindich's team apparently thinks a correlated boom in silver may be sustained, with the precious metal already up 40% for the year. SEC records show the hedge fund has upped its exposure to the sector, expanding its iShares Silver Trust holdings from 2.8 million at the start of the year to 3.6 million over 2009. So far, the bet has paid off with iShares Silver Trust rising to $17.56 (on October 14), up from $10.45 at the start of the year. Mind you, it's worth noting that both the gold and silver stocks mentioned above have dramatically outperformed the 20% gain for physical gold this year.
Eton Park also holds about 8.1 million shares of the SPDR Gold Trust, a global ETF that is up more than 30% for the year through October 22. That gain pushed the value of the hedge fund's ETF holding to roughly $842 million.
Late last year, Eton Park held a mere 261,000 shares. But that holding was a conscious beachhead to something bigger. Regulatory filings show Mindich's team had the foresight to build up massive option positions for its eventual push into the ETF, holding some 10 million call options in late 2008.
Some may criticize Eton Park's use of massive ETF exposure to gold as "un-hedge fund like." But the record shows that Mindich's team skillfully upped their position through futures—like exposure to precious metals just at the critical time in 2008 without the added risks and fees associated with managing a CTA book.
Yes, gold and precious metals have already succeeded as a portfolio hedge for Eton Park. But with folks like former Soros partner Jim Rogers calling for gold to top $2,000, this portfolio hedge may see much more breadwinning upside yet.
Tactics? Tapping ETFs was the correct call. And one has to give credit to Eton Park for not going simply into mining stocks. Sure, its AngloGold Ashanti play has worked throughout the year, but mining companies did not lend as direct an exposure to gold's upside.
A good example is Harmony Gold Mining, a stock that has risen only 45 cents this year, at $11.42 on October 21. Filings with the SEC show Eton Park owns 2.3 million shares for a stake of $26.3 million.
One stock conspicuously absent from the portfolio is Newmont Mining. Filings with the SEC show the hedge fund held some 441,000 shares last year, which it sold off. Mindich's team should have waited as the stock rose from $35 at the start of 2009 to $45.15 per share on October 21.
Another Eton Park sector holding, Gold Fields, has risen to $14.15, up from $9.93 at the start of the year. The hedge fund owns 4.6 million shares, based on SEC filings. Gold Fields remains an investor favorite these days, possibly linked to the company's somewhat ambitious plans for extraction and new discovery.