Subject: See below re: YPF Repsol and of interest re: Rank
From: "Eric Schwerin" <[email-masked]>
To: "Hunter Biden" <[email-masked]>, "Michael Muldoon" <[email-masked]>, "Joan Peugh" <[email-masked]>
Date: Mon, 7 Mar 2011 10:20:11 -0500

http://news.yahoo.com/s/nm/20110307/bs_nm/us_smartmoney_commodities

Smart Money: Top hedge funds betting on plastics

NEW YORK (Reuters) – "Just one word ... plastics."

That well-known line from the classic 1967 movie "The Graduate" may sum up the recent investment strategy of some top hedge fund managers, including James Dinan and David Einhorn.

A wave of managers snapped up shares of LyondellBasell Industries (LYB.N), which makes chemicals like propylene and polyethylene, the stuff that goes into plastics.

The popularity of plastics and raw materials signals that hedge funds are diversifying commodity bets beyond gold, the darling of 2010 returning 30 percent, as inflationary pressures seep into food and energy.

Top hedge funds' bets on LyondellBasell and other raw materials producers like Penn West Petroleum (PWT.TO) and Repsol YPF SA (REP.MC) suggest investors are seeking out commodity-related plays as the global economy wiggles out of a bruising recession.

LyondellBasell -- the third-largest chemical maker in the United States -- was certainly hurt by the downturn, declaring bankruptcy in early 2009.

But after LyondellBasell emerged back onto the public markets in October, Dinan's York Capital Management and Einhorn's Greenlight Capital, along with Andreas Halvorsen's Viking Global Investors and Thomas Steyer's Farallon Capital Management disclosed their stakes in LyondellBasell.

"LyondellBasell produces a commodity that goes into a lot of things we use every day," said Matthew Eagan, a portfolio manager at $150 billion Loomis Sayles in Boston.

Propylene is a molded plastic used in making rope, clothing, car parts and many other common products. Polyethylene is the most common plastic, used in products from shopping bags to bullet-proof vests.

Global growth is on the rebound, led by nearly 10 percent growth in China, whose urbanization and industrialization have turned it into the world's top consumer of many commodities. This growth and the climbing price of oil could trigger half a trillion dollars of commodity investments by the end of this year, according to Barclays Capital.

"Inventory levels generally remain tight, supply disruptions continue to add further supply pressure for multiple commodities, and demand generally continues to grow in emerging markets and recover in developed markets," said Nelson Louie, global head of commodities at Credit Suisse Asset Management.

Staples like wheat, rice and corn have reached record prices, and gold jumped above $1,400 an ounce recently.

To be sure, there are obvious risks that could slow growth and put a damper on many commodity prices. Rising political tension in the Middle East and North Africa have sent oil surging 7 percent since December. Though still manageable, further increases could deal a significant blow to the economic rebound, another Barclays report said.

Still, the "Smart Money 30," a group of some of the largest stock-picking equity hedge funds, is betting big on commodities. The group is comprised of funds reporting the highest dollar value of equities in quarterly filings. Funds with more than 200 positions are excluded to avoid quantitative and rapid trading strategies.

Collectively, the group had almost 7 percent of its reported assets tied up in the materials sector at the end of 2010, double the sector's weight in the Standard & Poor's 500 index, according to data compiled by Thomson Reuters.

LyondellBasell was the No. 2 new holding by dollar value for the Smart Money group in the fourth quarter, behind only General Motors.

Several other commodity-oriented stocks also dominated the top 10 new positions during the quarter, reflecting ever-increasing global demand for food, energy and materials. The top 10 included Penn West, Repsol, Del Monte Foods (DLM.N) and Massey Energy (MEE.N).

"All of these are somewhat good commodity hedges," said Loomis' Eagan, whose firm has also taken on commodity plays, including the debt securities of Del Monte.

Hedge funds likely saw gains on merger and acquisition activity for Del Monte and Massey Energy, and it is unclear whether their bets run deeper.

Del Monte shares soared 31 percent in November as private equity firm Kohlberg Kravis & Roberts made a bid for the company.

Massey's stock jumped 17 percent in January after the coal miner agreed to a $7 billion takeover offer from Alpha Natural Resources (ANR.N). The stock drifted lower after the company reported a third straight quarterly loss.

(Additional reporting by Ernest Scheyder in New York; editing by Aaron Pressman and John Wallace)

Eric D. Schwerin
Rosemont Seneca Partners, LLC
1010 Wisconsin Ave., NW
Suite 705
Washington, DC 20007
(202) 333-1880
[email-masked]
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