Lansdowne Partners did a good job in the second quarter digging out of the huge hole in its main hedge funds. Even so, they remain in negative territory for the year.
One stark example: The Lansdowne Developed Markets Long Only Fund rose 13.5 percent in the June period but is still down more than 26 percent for the year, according to Lansdowne’s second-quarter letter, obtained by Institutional Investor.
Its European Absolute Opportunities Fund is down 10 percent for the year, even after gaining 5.5 percent in the second quarter, according to a separate letter.
II reported earlier this month that London-based Lansdowne is shutting down its main long-short fund and directing investors to switch to one of two long-only offerings, including a new fund it is launching. In a letter to investors in its Lansdowne Developed Markets Fund, the London-based hedge fund firm said its “listed long book has never felt more compelling.”
“Excessive short-termism has created valuations which are extreme,” it added, explaining why it is taking this major step. Lansdowne also said it is much harder to find opportunities in the short book.
Interestingly, three of Lansdowne’s lesser known, more niche funds are solidly positive for the year.
For example, the Lansdowne Greater China Fund rose 7.4 percent in June and is now up 5.5 percent for the year. This is better than the 4 percent gain posted by the MSCI China All Shares Net Total Return Index, according to a separate Lansdowne report obtained by II.
About 90 percent of the fund’s exposure — all on the long side — is in Hong Kong with the rest in China. Half of its sector exposure is in consumer, non-cyclical stocks. Technology and health care also have a sizable presence in the portfolio.
In the letter, Lansdowne told clients it transitioned to a long-only structure on July 1. It also said it noticed “a continued widening” of the discount of Hong Kong listed shares. “As a result, during the quarter we shifted the majority of the weighting to Hong Kong listed names from US ADRs and A shares,” it added.
The fund, managed by Yang Wu and Xing Zhao, also exited “crowded growth stocks” which more than doubled from their lows in March, according to the letter. “The relative weightings of the themes also shifted towards deep value as a result.”
Meanwhile, the Lansdowne Energy Dynamics Fund posted either a 4.8 percent or 5.2 percent gain in the second quarter, depending on the share class. As a result, it is up either 11 percent or 12 percent for the year, depending on the class, according to a separate letter obtained by II.
“The main challenge recently has been to keep the fund volatility in line with our 10 percent target in an environment where market volatility has been almost three times the historical norm,” Lansdowne stated in the letter. As a result it said it is running lower exposures than normal.
Drilling down by sectors, the fund made most of its money from three of five sectors, all from the long side: industrials, renewables, and utilities and energy infrastructure.
Its biggest winners were Nikola Motors, the alternative-fuel powered heavy-duty truck maker; RWE, a German electric utilities company; Carrier Global, the heating, ventilation and cooling giant spun out from United Technologies on April 3; and Vestas Wind Systems A/S, a Danish maker of wind turbines.
It posted sharp losses shorting commodities. “Although we closed our U.S. Oil & Gas shorts in a timely fashion late March, we reinitiated them too precipitously as the sector rebounded sharply,” it explained in the letter. One of its losing short bets was electric car maker Tesla.
The Lansdowne Clean Energy Fund is another profitable fund this year. It surged more than 25 percent in the second quarter and is up nearly 5 percent for the year, according to its separate second-quarter letter obtained by II.
Long positions among industrial stocks accounted for roughly half of the second quarter performance, while renewables — and to a lesser extent utilities and energy infrastructure — kicked in most of the rest of the gains, according to the letter.
Regionally, Europe accounted for about 15 percentage points of its nearly 26 percent gross gains, while North America kicked in 11 points.
Nikola Motors, Vestas, and Carrier were three of its four best-performing stocks in the second quarter.
