Where is Paulson investing now?

Billionaire John Paulson’s hedge-fund firm, Paulson & Co, filed its most recent 13F (institutional managers who manage over $100 million are required to report their long positions in the U.S. markets each quarter) for the quarter ended June 30, and he’s making a huge bet on financials…

Paulson gained fame in 2007 after he made over $3 billion shorting subprime securities. He then added to his financial short by selling shares of British banking giants Lloyds TSB Group, HBOS, Barclays, and Royal Bank of Scotland. All four plunged, and Paulson made even more.

Next he made a huge bet on inflation, piling almost $5 billion (around 16% of his fund) into gold and gold stocks (Paulson is the largest shareholder of the $34 billion SPDR Gold ETF).

Obviously not one for conservative position sizing, Paulson has now plowed into financial stocks. His firm bought 167 million shares of Bank of America, 7 million shares of JPMorgan, 2 million Goldman shares, 35 million shares of Regions Financial, 17 million shares of Capital One, and massive positions in six other financial firms. And he’s probably already made billions on his new positions considering the market rally since March – Bank of America, his largest new position, is up around 40% from where he bought it.

You can view the complete SEC filing here.

Paulson isn’t the only heavy hitter betting on financials… At the end of the second quarter, money managers as a whole had 18.5% of their long portfolios in the financial sector – the largest weighting of any sector. Technology is second at 16.8%. Then comes Health Care (12.9%), Energy (12%), and Industrials (10.3%). See the entire breakdown here.

Contrarians take note… The S&P 500 Financials Sector Index is up over 130% since bottoming in March, and the trade is getting mighty crowded.