August 16, 2011 / 12:05 AM / 8 years ago

UPDATE 2-Paulson slashes stake in Bank of America

* Paulson cuts Bank of America stake

* Sticks with SPDR Gold Trust (Adds details on other holdings, Paulson’s investment style, background, bylines)

By Svea Herbst-Bayliss and Ashley Lau

NEW YORK, Aug 15 (Reuters) - Billionaire investor John Paulson, whose flagship funds are down some 30 percent for the year to date, cut back on one of his biggest holdings but largely kept the other major holdings unchanged.

Weeks after telling investors in July that he had been overly aggressive with some of his calls, Paulson showed the world that he began scaling back and diversifying within the financial sector during the second quarter.

At the end of June Paulson owned 60.4 million shares in Bank of America (BAC.N), down from 124 million at the end of the first quarter.

Paulson had told investors on that rare conference call in July that he was surprised by the size of Bank of America’s mortgage problems and said he would be shifting money into financial companies with fewer problems.

He had already begun to do so.

In the second quarter he raised his stake in Wells Fargo (WFC.N) to 33.6 million shares from 20.5 million shares and lifted his stake in Capital One (COF.N) to 21.1 million shares from 18 million shares. [nN1E7780AL]

While Paulson was clearly adjusting some holdings, the moves were too small to save his roughly $35 billion fund firm from the battering it endured over the last few weeks as Bank of America’s stock price declined further. In the last three months the company’s shares have tumbled 41.07 percent.

Paulson is known for making big bets and sticking with them often for very long periods.

On Aug. 11 Reuters wrote in a Special Report [nN1E7780AL] that some hedge fund industry analysts and investors were beginning to worry that Paulson’s Advantage funds, his two largest portfolios, were too large and taking mutual-fund style bets on too many stocks.

One thing that has helped Paulson is that his firm has kept its stake in the SPDR Gold Trust unchanged at 31.5 million. It is the firm’s biggest holding and one of its most profitable given the surge in gold prices,

The funds’ holdings of Hartford Financial Services Group (HIG.N), Paulson’s seventh largest holding, were cut to 40.5 million shares from 43.9 million shares. His holdings of SunTrust Banks STI.N were reduced to 32.1 million shares from 34.3 million shares. And he trimmed his MGM Resorts International (MGM.N) holdings to 41.7 million shares from 43.8 million shares.

AngloGold Ashanti AU_pa.N, Paulson’s second biggest position, weighed in at 39.9 million shares, down only slightly from 41 million shares.

In the past, especially when he bet against the overheated U.S. housing market, Paulson’s ability to spot trends early and stick with them has paid off big for himself and investors.

This time around though some investors are beginning to worry that Paulson has lost his magic touch, particularly now that the economy is not recovering as quickly as he initially forecast. (Reporting by Svea Herbst-Bayliss; editing by Carol Bishopric)

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