This Hedge Fund Just Made A Massive Bet Against the SPY

Page 1 of 2

Boston-based hedge fund Fort Warren Capital Management is predicting a doomsday scenario for equities in the coming months, if one goes by the latest 13 filing it has submitted with the SEC. Founded by Eugene Lee and Paul Singh in July 2014 with $200 million in assets under management (AUM), Fort Warren boasted regulatory AUM of $376 million at the end of March. Prior to founding Fort Warren, both Mr. Lee and Mr. Singh worked as senior analysts at Regiment Capital Advisors until 2013.

The latest 13F filing of the fund for the quarter ending September 30 is a shocker considering that the value of its equity portfolio increased by more than six-fold during the third quarter to $655.47 million from $95.66 million at the end of second quarter. Moreover, more than 80% of the value of the fund’s equity portfolio was amassed by a single bearish bet on the SPDR S&P 500 ETF Trust via Put options. In this post, we are going to take a look at the five major moves made by Fort Warren Capital Management during the third quarter.

At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).


Whiting Petroleum Corp (NYSE:WLL)

Let’s start with Whiting Petroleum Corp (NYSE:WLL), a position that Fort Warren liquidated during the third quarter, having initiated it just a quarter earlier. The independent oil and gas company has lost almost 90% of its market capitalization since mid-2014. Although its stock saw a strong rally between March and early-June of this year, it has given up most of those gains since then and now trades down by 13.03% year-to-date. For its third quarter, the company recently reported a massive decline in its revenue owing to a decline in production after the sale of its higher-cost assets. However, analysts see this sale of higher cost assets as a positive move by Whiting Petroleum Corp (NYSE:WLL), as its Lease Operating Expenses fell to $7.98 per barrel of oil equivalent (BOE) during the quarter and have the potential to decline even further given that the company is now focusing on drilling more efficient wells in the Williston and Redtail basins.

Follow Whiting Petroleum Corp (NYSE:WLL)

Calpine Corporation (NYSE:CPN)

Calpine Corporation (NYSE:CPN) was another stock in which Fort Warren Capital Management sold off all of its shares of during the third quarter. At the end of June, Calpine Corporation (NYSE:CPN) was Fort Warren’s ninth-largest holding, worth $3.03 million. Another hedge fund covered by us that sold its entire stake in the company during the third quarter was Matthew Tewksbury‘s Stevens Capital Management. Calpine’s stock has been on a downward journey since early-June and has lost over 23% of its value so far this year. On October 28, the company reported its third quarter earnings, declaring EPS of $0.83 on revenue of $42.36 billion versus analysts’ expectations of $0.59 in EPS on revenue of $42.14 billion. That earnings and revenue beat prompted analysts at Deutsche Bank to up their price target on the stock to $19 from $17 on October 31, while keeping their rating on it unchanged at ‘Buy’.

Follow Calpine Corp (NYSE:CPN)

We’ll check out three of the fund’s top stock picks on the next page.

Page 1 of 2