Greenlight Steady in Stormy Markets

David Einhorn’s Greenlight Capital extended its remarkable late-year rally, racking up a 2.6 percent gain in volatile November. This extended his year-to-date return to 4 percent.

The strong November came in the face of a 0.5 percent decline for the S&P 500 and a 2.4 percent loss for the Nasdaq Composite.

But this understates how treacherous and volatile the environment was to make money. In November, the S&P 500 moved 1% on 12 of the 21 trading days — 6 up and 6 down, according to Howard Silverblatt of Standard & Poor’s.

Einhorn’s November investment returns — the first to be disclosed by a hedge fund — were reported by Greenlight Re, the insurance company controlled by Einhorn. It points out that investment returns are based on the total assets in its investment account, which are managed by DME Advisors, LP and include the majority of its equity capital and collected premiums.

Einhorn’s largest disclosed long positions entering November were Apple, gold, Market Vectors Gold Miners, Microsoft and Vodafone Group.

As of November 30, Apple, General Motors, gold, Market Vectors Gold Miners and Microsoft were Greenlight’s largest disclosed long positions

As recently as the end of September, Greenlight was down 5.1 percent for the year.

Einhorn’s strong November is especially compelling given that his portfolio was not exactly structured to benefit heavily from a rising market.

In a conference call last month to discuss the insurer’s third quarter results, Einhorn said the conservative stance that he maintained throughout the first half of the year in a rising market was rewarded in the third quarter as his firm was able to preserve capital in the Greenlight Re portfolio and generate a flat result in a quarter where the S&P fell about 14 percent.

He said he entered the third quarter about 23 percent net long, down about 10 percent from where he entered the second quarter.

During the third quarter, Einhorn also said he shifted a portion of his gold investment from physical gold into ETF gold mining companies. Then, late in the quarter, he increased net long exposure to 35 percent, which enabled him to benefit from the unexpected strong market in October. He ended October 33 percent net long.

Einhorn also told clients the investment environment remained challenging, stressing that many equities, especially large caps, seem attractive. But this was offset by what he called “the continuing impact of dangerous macro policies.”

Meanwhile, London-based Brevan Howard reported it was up 2.35 percent in November. But these results were through last Friday, putting it up 13.31 percent for the year.

The hedge fund giant co-founded by Alan Howard — which has been in the black all year — has been structured to make money when the market is down and lose when the stock market is up.

For example, the S&P 500 lost 7.6 percent in November through the November 25 period for which BH disclosed its results. It rallied 7.4 percent in the final three days. So presumably, Brevan Howard gave back some of its gains during that brief period.