| David Einhorn, Greenlight Capital (Bloomberg) |
David Einhorn’s Greenlight Capital hedge fund got off to a very strong start in the fourth quarter, apparently getting a big boost from its short book in October.
The fund, managed by his firm of the same name, is now beating the Standard & Poor’s 500 stock index for the year, unlike the average long-short equity fund. Einhorn’s Greenlight Capital fund posted a 1.2 percent gain in October, compared with a 1.9 percent loss for the S&P 500 and a 2.1 percent decline for the Nasdaq Composite.
As a result, the long-short equity hedge fund is now up 5.7 percent for the year through October. This compares with a 4.0 percent gain for the benchmark.
One short bet that appears to have contributed to the gains is Athenahealth. The healthcare computing services company dropped 18 percent in October alone. Last week, Athenahealth laid off more than 100 employees after reporting quarterly results that came in well below expectations.
Greenlight appears to have benefited from the nearly 6 percent drop in Amazon.com’s stock following its earnings miss. Greenlight had noted in its second-quarter letter to investors that its bet against the stock was a source of losses in the June period.
Greenlight, which in its client letters regularly reports on positions it closes out, did not mention in either the second- or third-quarter report that it closed out its short positions in the e-commerce giant or Athenehealth. In general, the firm says it is shorting a basket of speculative stocks, which it calls its bubble basket. In addition, shares of Pioneer Natural Resources, Greenlight’s so-called “mother fracker” stock that Einhorn singled out at an investment conference last year as a major short, fell 3.6 percent last month.
Otherwise, Greenlight’s largest long positions either detracted from October’s performance or were no help. For example, Apple and auto giant General Motors Co. — its two largest equity longs at the end of the second quarter and two of its five largest long positions as of the end of the third quarter — were essentially flat for the month. CONSOL Energy, the coal and natural gas company that has been Greenlight’s best performer all year, fell 11.7 percent in October. Even so, the stock is still up more than 100 percent this year. In addition, Greenlight’s long-held large position in gold dropped nearly 3 percent last month.
The only bright spot among its five largest disclosed longs was AerCap Holdings, an aircraft leasing company, which returned nearly 7 percent last month.
It also was boosted by chemical company Chemours, whose stock rose about 2.6 percent in October despite dropping more than 6 percent on Monday, the final day of trading for the month.
Created when it was spun off from DuPont in July 2015, Chemours was one of three longs Greenlight singled out in its third-quarter letter for its performance during the September period, the others being Apple and CONSOL Energy.
Chemours had been operating below the radar, since it hadn’t been among Greenlight’s largest holdings, and Einhorn hasn’t spoken about it at conferences. Its stock, though, nearly doubled in the third quarter thanks to strong earnings fueled by rising prices of titanium dioxide and improvement in its cost-reduction plan, Greenlight explains in its third-quarter letter.
At the end of the second quarter, Greenlight was the largest shareholder of Chemours, having nearly doubled its stake.
In the quarterly letter Greenlight acknowledged that investors are concerned about Chemours’ exposure to legal liabilities related to its Teflon manufacturing.
“We continue to believe the ultimate liability is management, and that a recent negative verdict currently under appeal might not stick,” Greenlight’s management team quipped in the letter.
In addition, at a recent conference in Dallas, Einhorn talked up the shares of Mylan, which has faced huge criticism for sharply raising the price of the EpiPen, which is used on patients suffering potentially fatal allergic reactions. Mylan’s stock, though, was down more than 4 percent in October.
At the end of the third quarter, Greenlight boosted its gross market exposure to 188 percent, up from 165 percent at the end of June. However, its net exposure remained roughly the same at 28 percent, versus 27 percent three months earlier.
