David Einhorn’s Greenlight Capital suffered a slight setback in August after enjoying a very strong July.
With four months left in 2016, there is a lot riding on Greenlight’s ability to sharply turn things around after losing 20 percent last year. Otherwise, it could face a rash of redemptions, as many struggling hedge fund firms can already attest to.
Greenlight faced heavy criticism from its investors for last year’s performance.
When I asked one Greenlight investor earlier this week whether this year’s rebound can atone for last year, he quickly retorted, “They were down 20 percent when the market was flat.” Ouch!
The New York hedge fund firm posted a 0.3 percent loss for August. This trimmed its gain for the year to 5.4 percent.
This compares with the Standard & Poor’s 500 stock index, which lost just 0.1 percent in August and is up 6.56 percent for the year.
Last month Greenlight seemed to be hurt by a few of its high-profile shorts.
Pioneer Natural Resources, Greenlight’s now famous “mother fracker” stock, was up more than 10 percent in August.
Although we don’t know which stocks are contained in Greenlight’s so-called bubble basket, Amazon.com is a likely component. The Internet retailer was off by 1.5 percent last month.
When Greenlight lost 2.6 percent in the second quarter, most of the loss came from its shorts, especially Pioneer and Amazon, according to its second-quarter letter to investors.
On the other hand, Athenahealth, another well-documented short, fell more than 4 percent last month.
Greenlight was also hurt last month by two of its most successful long bets.
Consol Energy, by far Greenlight’s best performer, suffered a setback last month. The coal and natural gas company was down 6.1 percent. However, it is still up 130 percent for the year to date.
Greenlight’s big bet on gold also proved to be unprofitable in August, when the metal fell about 3.3 percent. However, for the year it is still up more than 20 percent.
Otherwise, most of Greenlight’s largest longs made money last month.
For example, Apple — Greenlight’s largest U.S. long at the end of the second quarter — was up 1.8 percent last month.
General Motors Co., its second-largest long, rose 1.2 percent.
AerCap Holdings, the aircraft leasing giant, surged 9.5 percent, while Time Warner was up 2.3 percent.
Greenlight established 12 new positions in the second quarter. However, none of them are major positions in the overall portfolio.
Heading into September, Greenlight’s portfolios are roughly 95 percent long and 71 percent short. This is more or less where they stood at the end of the second quarter.
