| David Tepper, Appaloosa Management (Bloomberg) |
The first quarter is shaping up to be a tough one for many hedge fund managers. And that’s no different for the hedge funds managed by David Tepper’s Appaloosa Management. Tepper, who personally now operates out of South Beach in Miami Beach, Florida, but still maintains an office in Short Hills, New Jersey, posted a loss of a little less than 1 percent in the March quarter in his two main funds.
Of course, this is nowhere near as bad as the losses many long-short and other managers reported during the first three months of the year. Last year Appaloosa returned about 11 percent.
Tepper won’t comment. However, according to an individual familiar with Appaloosa’s main funds, in the first quarter Tepper used some of the cash he had built up last year but did not exactly go on a buying spree. He is still said to be cautiously invested.
Tepper expects the markets to grind higher this year amid a very tough environment. He is said to be concerned if one of the protectionist-minded candidates becomes president, such as Donald Trump or Bernie Sanders, which he is telling people would be bad for the economy and the markets.
As for the portfolio of Tepper’s main funds (a flagship onshore fund and its offshore counterpart), it now has very little currency exposure and no fixed-income exposure. It has a small position in mortgages, but Tepper is said to be concerned about that market’s illiquidity.
Among equities, Appaloosa’s main funds entered the year roughly maintaining the same top positions in their U.S. long portfolio that they had the previous quarter, according to regulatory filings.
General Motors Co. remained the largest individual long equity position in the main funds, even though Appaloosa slightly reduced its stake in the company in the fourth quarter. This was followed by three other especially large stakes: Google (of which Appaloosa nearly tripled its stake in the fourth quarter), Delta Air Lines and HCA Holdings.
Appaloosa also heavily boosted its stake in Southwest Airlines Co. by about 160 percent, making it the hedge fund firm’s sixth-largest individual U.S. long at year-end. Appaloosa more than tripled its stake in Allstate Corp., the firm’s next-largest long position.
Keep in mind that when it comes to Tepper, his investment positions can change in a heartbeat. This is what makes him nimble and the most successful hedge fund manager of all time, at least among those who don’t use computers to make investment decisions.
On a macro level, Tepper is said to be concerned about the uncertainty over monetary policy, the current political situation in the U.S. and the emerging markets. He is also telling people he is a little concerned about the Panama Papers and what additional high-profile world leaders may pop up in them.
At the same time, Tepper doesn’t want to miss a market rally, mindful that a decision by Japan to buy stocks could propel markets. But he is still telling people there are times to make money and times to not lose money, and we are still in the latter environment.
