Hedge-fund manager David Tepper bought $2.4 billion of oil and gas stocks in the second quarter, shifting 79 percent of his U.S. equity holdings into energy from less than 1 percent three months earlier.
Tepper, who runs Appaloosa Management LP in Chatham, N.J., and is the namesake for the Tepper School of Business at Carnegie Mellon University in Pittsburgh, acquired stakes in 18 energy companies including Chevron Corp., ConocoPhillips and Devon Energy Corp., according to an Aug. 14 filing with the Securities and Exchange Commission. He added more shares of the Energy Select Sector SPDR Fund.
The value of the holdings fell about 14 percent from the end of the quarter through this week as commodity prices plunged from a July 3 record.
Stanley Druckenmiller's Duquesne Capital Management LLC in Pittsburgh also loaded up on energy stocks in the quarter, according to SEC filings.
"A lot of funds have been caught long on crude," said Peter Fusaro, chairman of Global Change Associates Inc., a New York firm that tracks 700 hedge funds that make energy-related investments. "If they were increasing their exposure in the second quarter, they are taking losses now."
Tepper, 50, the former head of junk-bond trading at Goldman Sachs Group Inc., could not be reached for comment. Druckenmiller, 55, who is negotiating to purchase a controlling stake in the Steelers, doesn't discuss his holdings, a Duquesne official said.
Some energy stocks failed to keep pace with rising crude oil prices during the second quarter. That presented an opportunity for investors such as Tepper who look for companies trading at discounts.
Oil prices soared 38 percent during the quarter and peaked at a record $147.27 a barrel on July 11. Oil stocks rose more slowly during the quarter, as shown by the 20 percent increase in the Energy Select Sector SPDR Trust, the exchange-traded fund for the 39 oil and gas companies in the Standard & Poor's 500 Index.
By purchasing oil and gas stocks, investors effectively bought the companies' proven reserves at a discount to market prices, said Kurt Wulff, an independent analyst who once worked with billionaire Carl Icahn on energy-company takeovers.
"There was one of these gaps between the value of stocks and the value of oil prices," Wulff said. "You know that gap has got to narrow, but you don't know if oil prices are coming down or stock prices are going up."
Druckenmiller, a former oil-industry analyst for Pittsburgh National Bank who later managed money for billionaire George Soros, reported in an SEC filing that Duquesne's energy-related holdings equaled 40 percent of stocks reported at June 30, up from 19 percent at March 31.
Oil and gas stocks accounted for 16 percent of the market valuation of the Standard & Poor's 500 Index at June 30, according to Bloomberg data.
Although some of the increases stemmed from appreciation of existing holdings, all of the managers also were buying oil and gas shares during the second quarter. Their common purchases included Anadarko Petroleum Corp., Canadian Natural Resources Ltd. and Chesapeake Energy Corp.
Many of these stocks have fallen since July 11 as crude prices plunged as much as 24 percent.
By Aug. 15, when crude prices touched a low of $111.34 a barrel, the market value of Appaloosa's oil and gas stocks had fallen to $1.9 billion.
Yet, these fund managers ultimately might be proven right. Oil prices began to recover this week -- crude oil futures rose as high as $122.04 a barrel Thursday. But it fell again Friday to close at $114.59, down $6.59 a barrel, or 5.43 percent. It was crude's largest single-day price drop percentage-wise since Dec. 27, 2004.
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