By Katherine Burton – Jul 7, 2010

Paulson & Co. President John A. Paulson speaks during a meeting in New York. Photographer: Rick Maiman/Bloomberg

John Paulson, the billionaire who has been betting on a U.S. economic recovery, lost 6.9 percent in June in his Advantage Plus hedge fund to bring his first-half decline to 8.8 percent, investors said.

The Standard & Poor’s 500 Index of U.S. stocks tumbled 13 percent from the end of April through June 30, hurting performance. Paulson’s Advantage and Advantage Plus funds were positioned to profit from a jump in stocks including financial- services companies, said two clients briefed on the returns, who asked not to be named because the fund is private.

Paulson, who runs the $33 billion New York-based Paulson & Co., hasn’t changed his bullish views after the stock market’s decline and last week’s data showing weaker-than-expected private-sector employment in June, according to the investors. Almost two-thirds of the firm’s assets are in his Advantage funds, which invest in corporate events such as bankruptcies and mergers. The Advantage fund dropped 4.4 percent in June and 5.8 percent in the first half, the investors said.

Armel Leslie, a spokesman for the fund firm, declined to comment.

Paulson & Co. raised its stakes in financial companies in the first quarter by 6.5 percent, according to regulatory filings.

Bank of America Corp., Paulson’s second-biggest stock holding after the SPDR Gold Trust exchange-traded fund as of March 31, has declined 2.2 percent in 2010, including dividends. The company gained 29 percent this year through mid-April.

Citigroup Inc., his next-largest position, has climbed 18 percent in 2010 after rising 46 percent through April 23, when the S&P 500 reached this year’s peak.

Recovery Fund

Paulson’s smaller Recovery Fund, marketed as a purer play on economic growth, fell 12 percent in June, the investors said. The fund rose 9 percent in the first half.

Paulson, 54, has told clients he expects inflation to increase over the next three to five years, which is why he has also been buying gold and mining shares, including AngloGold Ashanti Ltd. and Kinross Gold Corp. The firm also offers fund shares denominated in gold. Gold has risen about 10 percent this year.

Paulson’s Gold Fund climbed 7.3 percent in June and 13 percent for the year, the investors said.

To contact the reporter on this story: Katherine Burton in New York at