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Greenlight Capital's Big August Loss Compounds 2018 Woes

The hedge fund tanked last month, adding to already substantial losses this year from bad bets on both the long and short sides of its portfolio.

  • By Stephen Taub

David Einhorn’s Greenlight Capital has suffered another gargantuan monthly loss, dropping 7.6 percent in August alone.

Since the beginning of the year, the value-driven, long-short fund is now down 25.1 percent, according to a person familiar with its results.

In comparison, the Standard & Poor’s 500 index is up 8.5 percent year-to-date, while the Nasdaq Composite has gained 17.5 percent over the first eight months of the year.

Greenlight declined to comment, but a review of its biggest disclosed long holdings and high-profile short bets reveals problems across the board.

Once again, Greenlight’s shorts hugely detracted from the hedge fund’s performance. But none were worse for Greenlight than e-commerce giant Amazon.com, whose stock surged nearly 12 percent in August alone. Amazon is one of Einhorn’s infamous “bubble basket” short bets that he refuses to cover.

Other high-profile shorts lost Greenlight much smaller amounts, but the stocks rose in price for the month nonetheless. Tesla rose more than 1 percent, while Athenahealth gained nearly 3 percent.

Another bubble-basket short, Netflix, gained nearly 9 percent for the month. Greenlight reported in its second-quarter letter that it covered most of its Netflix equity short position at $281.46 between January and April, however.

On the other hand, fracking giant Pioneer Natural Resources fell about 7 percent for the month. This is the stock Einhorn dubbed the “mother fracker” at an investment conference several years ago. So, not all was bad in the shorting portfolio.

“We have increased our usage of put options in the short book,” the hedge fund firm told clients in the letter, stressing that it has been “prudently managing our gross exposure and individual position sizes.”

Greenlight also suffered some sizable losses on the long side. For example, shares of Bayer, the German pharmaceutical and life sciences company, plunged nearly 16 percent last month. Auto giant General Motors, Greenlight’s biggest U.S.-listed long holding accounting for 26.5 percent of U.S. long assets at the end of the second quarter, fell nearly 3 percent last month.

Metlife spinoff Brighthouse Financial, Greenlight’s second-biggest U.S. long at nearly 15 percent of U.S. long assets, was down more than 4 percent for the month. The ADRs (American Depositary Receipts) of U.K. offshore driller Ensco — Greenlight’s sixth-biggest U.S.-listed long at the end of the second quarter — fell nearly 6 percent in August. 

Other sizable holdings lost small amounts for the month.

In the second quarter, Greenlight established six new positions, but none of them cracked the fund’s top-ten, or even its top-20, according to the fund’s second quarter 13F filing with the Securities and Exchange Commission. The fund also liquidated 12 positions, but none of them were notable investments.

However, Greenlight cut its stake in Apple by 77 percent, Twitter by 35 percent, and DSW by 83 percent.

As it happens, in August iPhone giant Apple gained nearly 20 percent, social media giant Twitter rose more than 10 percent, and shoe retailer DSW surged more than 21 percent.

Too bad Einhorn didn’t make these stocks his biggest longs.

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