Greenlight Capital posted a strong 3.9 percent gain in April, in what was the worst month for stocks since September. The S&P 500 was down 4.2 percent, and the Nasdaq Composite dropped 4.4 percent.
It is not known what drove last month’s strong results. Certainly, the largest longs were not responsible for the gains given that four of Greenlight’s top-five positions lost money. Of course, the single stock shorts could have helped. The firm declined to comment.
Greenlight noted in its first-quarter letter that the 4.9 percent rise in the first quarter coincided with its long portfolio being up 2.2 percent net of fees and expenses and its single stock shorts being flat. This pattern could easily have reversed last month. Greenlight also likely benefited from its macro portfolio, which according to the letter kicked in 3.1 percent net to gains.
The value-driven hedge fund headed by David Einhorn is up 9 percent for the year. It told clients early in the quarter that it had established a new large position by selling December 2024 secured overnight financing rate futures. The SOFR is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities, generally used to hedge U.S. dollar short-term interest rates.
“At the time, the market expected the Federal Reserve to cut short-term interest rates between 1.5 percent and 1.75 percent this year,” Greenlight said in the letter. “Given the strong economy and possibly reaccelerating inflation, we believed this was highly unlikely and expressed our view directly by selling SOFR futures.”
Greenlight was right but did acknowledge it had subsequently “trimmed” the position. The hedge fund also said that in the first quarter it had benefited substantially from gold. The price of the metal was profitable in April, but not by much.
However, shares of SPDR Gold Trust, an exchange-traded fund, were up 3 percent in April. At year-end, the stock was Greenlight’s eighth-largest U.S.-listed long position.
Another major stock that was profitable for Greenlight was Tenet Healthcare, up nearly 7 percent in April. The operator of hospitals and ambulatory surgery centers has jumped nearly 50 percent for the year.
And Solvay climbed about 20 percent in April. It was the hedge fund firm’s biggest new position established in the first quarter and one of its five largest long positions, according to the letter.
Einhorn had discussed “new” Solvay, a Belgian company. at the April 3 Sohn conference. It is the surviving company from the spin-out of Syensqo. Greenlight describes it as a chemicals business whose key products are soda ash (sodium carbonate) and Bicar (sodium bicarbonate), peroxides, silicas, fluorine, and rare earth formulations and solvents.
Greenlight paid an average price of €22.89. It closed Wednesday at €30.41. The hedge fund asserts that the shares are undervalued, noting that the company has a conservative balance sheet and a nearly 10 percent dividend yield.