Just like Main Street, this election season also saw Wall Street divided into two factions based on who they supported. However, the limelight that the hedge fund world and Wall Street elites garnered during the recent elections was perhaps more than they did in the previous two elections following the financial crisis. That’s because both the presidential nominees this time around shared a closer relationship with the world of high finance than their predecessors. On one hand, we had President-elect billionaire Donald Trump, him being a well-known New York real estate mogul who shares close ties with several top fund managers and financial barons in the city, while on the other hand we had democratic nominee Hillary Clinton, she who was accused of being a crony and sympathizer of big investment banks. Mrs. Clinton also shares a close family connection in the hedge fund world through her son-in-law, Marc Mezvinsky, who is the co-founder of the troubled Manhattan-based hedge fund Eaglevale Partners.
With such close acquaintances and family ties, this Presidential race was bound to get murky and so it did. Both candidates accused each other of being hand-in-glove with the financial industry, and being pro-rich while neglecting the interests of the poor, the unemployed and the marginalized. Hedge funds, for their part, showed their support by buying stocks they thought would benefit if the candidate they were rooting for won and shorting the stocks they thought would go down if the other emerged as the winner. Right up until the day the election results were announced, the markets were trying to figure out which side would emerge victorious and what that would mean for the markets, and when it was Mr. Trump crowned, they went into a tizzy. First the Dow and S&P 500 futures fell drastically, by as much as 5%, only to recover by the end of the trading day with solid gains. Now that the dust has settled and it’s clear which stocks have benefitted from the Trump win, we at Insider Monkey decided to cover two hedge fund legends, both Trump supporters, who have arguably booked the biggest profits from Mr. Trump’s electoral victory. In the rest of this article, we will talk about these two mavericks and the major winners in their portfolio since Mr.Trump’s victory.
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).
The founder of Paulson & Co, billionaire John Paulson, is best known for raking in billions when his ‘big short’ against the subprime bonds paid off handsomely during the financial crisis. Although Mr. Paulson hasn’t been able to replicate that performance in the years since and his big bets on gold and other assets in the meantime have underperformed, the election of Mr. Trump as President has given Mr. Paulson another major winner in his investment career. Mr. Paulson was one of the first top hedge fund managers to show his support for Mr. Trump after he secured the GOP nomination and Mr. Trump named the billionaire investor as one of his 13-member economic advisory team back in August. Interestingly, the windfall that Mr. Paulson’s portfolio has seen since the elections is less to do with Mr. Trump getting elected and more to do with Mrs. Clinton not getting elected.
The markets had feared that with Hillary Clinton at the helm, there would be controls imposed on drug pricing which wold be a dampener for the pharma industry. However, once it was clear that Mr. Trump would be the new President, the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) started shooting up following results day, ending the first post-election trading day with a gain of 8.5%. Since last Tuesday, the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) is up by almost 10%. According to Paulson & Co’s 13F filing for the June 30 reporting period, its public equity portfolio was worth $9.84 billion at the end of June and 57% of it was held in stocks from the healthcare space. With such large exposure to the healthcare industry, it’s quite possible that the fund’s equity portfolio would have registered at least half of the percentage gains that the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) has registered since Tuesday, which in itself means a profit of almost $500 million. Let’s take a look at the two major holdings of Paulson & Co that have benefited immensely from Trump’s win.
Valeant Pharmaceuticals Intl Inc (NYSE:VRX)
– Shares Owned by Paulson & Co (as of June 30): 19.07 Million
– Value of the Holding (as of June 30): $384.11 Million
Paulson & Co increased its stake in the beleaguered Valeant Pharmaceuticals Intl Inc (NYSE:VRX) by 43% during the second quarter, making the company its ninth-largest equity holding at the end of that period. Though Valeant Pharmaceuticals Intl Inc (NYSE:VRX)’s stock has lost more than 80% of its value this year, a major part of that loss was experienced during the first-half of the year. The stock was again on a downtrend since September, which seems to have ended and reversed now, as it is up by more than 20% since the close last Tuesday.
Shire PLC (ADR) (NASDAQ:SHPG)
– Shares Owned by Paulson & Co (as of June 30): 5.19 Million
– Value of the Holding (as of June 30): $956.22 Million
Though Paulson & Co reduced its stake in Shire PLC (ADR) (NASDAQ:SHPG) by 26% during the second quarter, the British biotech giant still remained the fund’s top stock pick at the end of June. If one assumes that Paulson & Co hasn’t lowered its holding in the company any further since then, the 12.44% return generated by Shire PLC (ADR) (NASDAQ:SHPG)’s stock since last Tuesday would translate into an almost $120 million gain for the fund.
We’ll take a look at Carl Icahn’s post-election winners on the next page.