Amid a tough year for the hedge fund, Greenlight Capital eked out a 0.5 percent gain in August — but that pales in comparison with the Standard & Poor’s 500 stock index’s 7 percent gain for the month, its best August performance since 1986, according to Bloomberg.
Greenlight is still down a painful 17 percent for the year, compared with an 8.34 percent gain for the widely followed benchmark, according to a person familiar with the results.
Greenlight declined to comment.
The firm headed by David Einhorn has been hurt for several years by its self-imposed strategy of emphasizing value stocks in a market that has been mostly rewarding fast-growing technology and internet stocks.
At the same time it has been stubbornly shorting several of the most prolific tech and new economy companies such as Tesla, Netflix and Amazon.com — infamously boasting several years ago it was shorting what it called a “bubble basket” of tech stocks, most of which it never specifically disclosed.
In its first-quarter letter, Greenlight said it let most of its infamous bubble basket puts — bets against several high-flying technology companies — expire. It explained that most of its bubble basket “was expressed in put spreads.” Greenlight said it let them expire in January, except for Netflix and Tesla.
Greenlight devoted two pages of its eight-page second-quarter letter to its continued case for betting against Tesla. On Monday, the electric car maker split its shares 5-for-1 amid buzz about when it will be included in the S&P 500 index.
The stock surged another 12.6 percent on Monday alone, and the stock has swelled more than five times this year.
“We expect the TSLA parabola to end around the speculated inclusion in the prestigious S&P 500 Index,” Greenlight predicted in the letter, earlier obtained by Institutional Investor.
Meanwhile, Greenlight this year has been positioning its portfolio for yet another major contrarian play: an anticipation of rising inflation, which so far is not apparent.
In its first-quarter letter Greenlight said it expects policymakers to target and applaud mid-single-digit inflation, which, combined with the Federal Reserve’s current policy of interest rate suppression, will be the only way to outgrow the current mounting debts.
“It might get tricky a few years from now if inflation accelerates further,” the hedge fund firm asserted. “The Fed has demonstrated it doesn’t have the stomach to slow the economy by reigning in policy.”
In its second-quarter letter, Greenlight told clients it determined the most direct method of profiting from higher inflation is by betting on an unexpected increase in the U.S. Consumer Price Index (CPI). So, it is investing in inflation swaps, which it described as a highly liquid derivative of Treasury Inflation-Protected Securities (TIPS). Their value is based on the official CPI at a future date, Greenlight explained.
In the second quarter it reduced its direct exposure to gold and added the VanEck Vectors Gold Miners ETF — an exchange-traded fund — and a small position “in a speculative gold miner.”
Greenlight also said it added a new medium-sized long position in Teck Resources, “which should benefit from base metal price increases,” it added.
Elsewhere in the portfolio, Greenlight said it added a new large position in the shares of Atlas Air Worldwide Holdings, the global freight giant. It paid an average price of $36.28 per share.
At the end of the second quarter, the VanEck ETF was Greenlight’s fourth largest U.S. long, while Atlas was the fifth largest, according to its 13F regulatory filing.
Teck Resources was the ninth-largest long.
