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These ‘Big Short’ Vets Were Up 169% Last Year
Financial and tech shorts, along with long energy plays, boosted the Seawolf Master Fund in 2022.
As a portfolio manager working at FrontPoint, Porter Collins was one of the subjects of “The Big Short” — the book, and later movie, on the 2008 market crash. He likes to say he’s been looking for the next big short ever since.
Last year, his Seawolf Master Fund found plenty of them — and ended the year up 168.6 percent.
“Our 2022 performance was beautiful in its simplicity of being long energy and short technology,” he wrote in an annual review that Institutional Investor has obtained.
Collins, along with fellow FrontPoint and “Big Short” vets Danny Moses and Vincent Daniel, started Seawolf as an equity long-short hedge fund in 2011, using their experience analyzing the financial sector. After 12 years, they wound down the fund, and Daniel and Collins started the Seawolf Master Fund, a family office that invests in other companies as well as financials.
“At the time of inception, our goal was to solve for fun and to live by the Confucius proverb, ‘choose a job you love, and you will never have to work a day in your life,’” they wrote in the review.
Last year, roughly 60 percent of Seawolf’s profits were on the short side, despite the fund having an 80 percent net long position, Collins and Daniel said in an email that accompanied the review.
That said, Seawolf’s top winner was a long position in coal producer Peabody Energy. Collins and Dainel said coal represented 31.5 percent of total profits, with energy accounting for 100 percent of the profits on the long side.
“On the short side it was a year for the ages,” they said in the email. “We were profitable in every sector (even energy) but for healthcare where we exited Moderna for a tiny loss. We even managed to get the better of Elon in [Tesla] this year despite the stock holding up until his ill-fated Twitter purchase.”
Other shorts that ranked among its top five winners were the ARKK Innovation ETF and Blackstone.
Financial services shorts also provided profits for the duo. “At the year’s outset, we saw an opportunity to short what is probably the fifth generation of consumer lending companies disguising themselves as capital light technology stocks,” they said, noting the “crazy valuations” awarded to “so-called innovative” companies like Carvana, Affirm, and Upstart.
Later in the year, Seawolf turned its attention to publicly traded stocks connected to the crashing crypto industry and shorted Coinbase, Robinhood, Silvergate, and MicroStrategy. “We still have a healthy short position in this theme,” Collins and Daniel said.
The other short theme for Seawolf involved asset managers reliant on low interest rates. In addition to Blackstone and ARKK, it shorted T. Rowe Price and TPG.
On the long side are Seawolf’s energy plays. “We are card carrying subscribers of the view that the energy vertical is in the early innings of a five-to-ten-year bull market cycle,” Collins and Daniel wrote. “More energy supply is needed, and, for a host of reasons, capital expenditures have gravitated towards renewable energy sources at the expense of more reliable carbon energy sources.”
They argued that the Inflation Reduction Act means that out of the types of energy that Seawolf favors, only nuclear and natural gas will continue to do well.
“Were investment decisions based solely on the ‘Politically Juiced In’ concept, our portfolio would be littered with solar, wind, and hydro related stocks,” they said. But they argued that “absent material breakthroughs in battery and storage technology, the net-zero carbon economy envisioned by the IRA architects increases the overall cost of energy.”
Despite this view, they were cautious: “Our respect for the power of being Juiced In keeps us away from stocks that we would normally attempt to short.”
Seawolf is investing in coal, oil field services, natural gas infrastructure, and uranium stocks. In addition to Peabody Energy, other energy stocks it owns are uranium company Cameo, Golar LNG, Petrobas, Schlumberger, KLX Energy Services, Profrac Holding Corp., Transocean, and Tidewater.
After Seawolf’s successful three years, Collins and Vincent are thinking of starting another fund that might be open to friends and family, the review said. “Wall Street types would label our initiative as a Growth and Income fund, but we envision something more like a Land of Misfit Toys fund,” they wrote.
“Our idea would be to buy distressed debt with equity-like returns, large dividend paying companies and the cyclical stocks we tend to like,” they added. “While we have recent success on the short side of the ledger, we remind ourselves constantly of Bob Farrell’s 10th rule of investing: Bull markets are more fun than bear markets.”