| David Tepper, Appaloosa Management (Bloomberg) |
Appaloosa Management’s David Tepper apparently knows how to play defense.
The Short Hills, New Jersey-based manager wound up avoiding the sharp losses suffered by many other managers during the August market volatility and posted only small losses in his two main funds. Appaloosa Investment I, Tepper’s domestic hedge fund, fell by 1.83 percent last month, trimming its gain for the year to 11.49 percent. His more fixed-income oriented fund, Thoroughbred, lost just 0.78 percent last month and is up 6.81 percent for the year.
These are pretty impressive numbers for a guy who has taken his investors on a sometimes stomach-churning ride on the way to becoming arguably the best-performing hedge fund manager (excluding those who use computers to make investment decisions). So where does Tepper go from here?
We noted in the throes of the August selloff that Tepper had gone into defensive mode, moving more of his portfolio into cash than usual, according to people familiar with the firm. He was mostly waiting to see how two major events play out in the markets: the slowdown in China and the U.S. Federal Reserve’s meeting in September, when it will decide whether to finally begin to raise rates.
Tepper was wondering whether the recent devaluation of the Chinese currency signals a major slowdown in the economy, and if so, how bad it will get and what the impact on financial markets ultimately will be. He was also fearing that a tightening move by the Fed would hurt stocks, according to people familiar with his thinking. In the second quarter, Tepper cut his U.S. equity portfolio by 30 percent, to $4 billion, or less than 20 percent of assets, which range somewhere between $20 billion and $21 billion.
Tepper also has been profitably playing the currency markets amid quantitative easing programs in many countries and regions. For example, he has cashed in going long the dollar and short the euro, although he is said to have cut back on the euro position as the currency has rallied.
At the beginning of the year, Tepper told people there was a 60 percent chance of a 6 percent to 8 percent rise in the stock market this year. The Standard & Poor’s 500 stock index is now down nearly 4 percent for the year.
On the other hand, he has also felt there was a 40 percent possibility the market will decline by 10 percent.
Right now, we are sort of in the middle of his two scenarios. Should be an interesting final four months. Stay tuned — Tepper plans to share his updated views on CNBC Thursday morning.
