Greenlight Capital, with its overall bearishness, has not benefited from the stock market’s two-month surge.
The value-driven hedge fund headed by David Einhorn lost 5.1 percent in May and is up just 1.7 percent for the year. For comparison, the Nasdaq Composite has gained 16.1 percent this year, and the S&P 500 climbed 5.1 percent in May and 10.l7 percent for the year.
Einhorn has been wary of the market’s upward trend for several years. As Institutional Investor previously reported, the hedge fund stressed in its first-quarter letter that when the Iran war started on February 28 the firm had a low gross and net exposure. “From our perspective, the market was already very expensive,” it explained. “We have reacted by changing very little.”
Greenlight said it was trading around index hedges and added a long position in October oil futures, which it said had moved up only modestly because the consensus is that there won’t be enduring shortages. “It probably won’t surprise anyone that we are again putting capital preservation at the top of our priorities,” the letter said. “With so little downside priced in, we are willing to risk missing out on a possible recovery to position ourselves to play more offense should one of the downside scenarios materialize.”
It certainly has missed the rally.
It's unclear how Greenlight’s shorts or macro bets played out in May. But, various oil indices plunged by mid- to upper-teen percentages, which would have hurt the fund if it had held on to oil futures.
The letter indicated the firm still had a small position in gold call options. According to GoldPrice, the price of gold has fallen 2.5 percent over the past 30 days.
Greenlight also said it is long SOFR futures, betting that the new Federal Reserve chairman will be more likely to cut short-term interest rates. But the Iran war and the subsequent rise in oil and other prices fueled doubts there will be a rate cut anytime soon. In fact, rates rose in May.
Otherwise, Greenlight’s equity long positions enjoyed mixed success last month. Its largest positions mostly lost money, though others fared better.
Acadia Healthcare, which in the first quarter became a top-five holding, dropped more than 10 percent in May. It is a pure-play behavior health care clinic operator. Engineering and construction giant Fluor declined more than 14 percent for the month. Coal giant Core Natural Resources fell about 1.4 percent, and utility PG&E was off 1.7 percent.
Greenlight did have a number of healthy winners last month among several sizable holdings.
Most notable is consumer packaging maker Graphic Packaging, whose shares surged about 18 percent in May. In the first-quarter letter, Greenlight noted the stock was a big loser in the first three months after the company missed earnings expectations and lowered future guidance. The hedge fund noted that the company had fired its popular CEO and replaced him with someone “who recently presided over a massive disappointment” at his previous company, adding that he has yet to articulate a clear strategy. Even so, Greenlight asserts, “we believe the shares are extremely cheap relative to a reasonable midcycle performance.”
Versant Media, a new medium-size position established in the first quarter, rose about 7 percent in May. It is up more than 28 percent from Greenlight’s average purchase price of $33.69 per share. Versant is a Comcast spin-off that includes cable networks MS Now, CNBC, and USA Network, as well as non–pay TV assets such as Fandango.
Shares of fashion company Victoria’s Secret, meanwhile, rose more than 6 percent in May. PENN Entertainment picked up nearly 8 percent, and DHT Holdings rose about 4.5 percent.
DHT owns and charters Very Large Cruise Carriers. “Even before the war, VLCCs were in short supply, with day rates rising to about 500 percent of the long-term average level,” Greenlight noted in the recent letter. “The company pays out its earnings as a dividend, and at these elevated charter rates we expect the dividend to rise from $0.74 to $3.50 per share this year.”
