Key Takeaways
- • Greenlight Capital, the hedge fund led by David Einhorn, gained 2.6 percent in October and is up 1 percent year to date, while the S&P 500 fell 1.85 percent and the Nasdaq dropped 6.45 percent over the same month.
- • Greenlight's macro book has been the main drag this year, with a 6 percent loss over the first nine months, after the fund wrongly bet the Federal Reserve would lower interest rates.
- • The fund cut its macro stake by one-third in the third quarter and maintains that the market is pricing in more rate hikes than will occur.
- • Top stock holdings were mixed in October: Fortune Brands rose nearly 18 percent, Centene gained more than 10 percent and Acadia Healthcare rose 9 percent, while Green Brick Partners, its largest long at about 17 percent of U.S.-listed longs, fell roughly 8 percent.
- • Greenlight established several new smaller positions in the third quarter, including ADI Global Distribution, Century Aluminum and Canal+.
Summary
Greenlight Capital, the hedge fund headed by David Einhorn, posted a 2.6 percent gain in October and is up 1 percent for the year, according to Institutional Investor. The result stands out against a broader market decline, with the S&P 500 down 1.85 percent and the Nasdaq off 6.45 percent last month. The drivers behind October's performance could not be determined.
The fund's macro book has been the principal source of its underperformance over the past two years. Macro lost 6 percent over the first nine months of the year, with long positions contributing a 5.1 percent gain, per Greenlight's third-quarter letter. In the third quarter alone, the macro book detracted 2 percent. Greenlight acknowledged that it wrongly bet the Federal Reserve would cut interest rates, a error it said cost the fund "a couple of points more than the macro book's total loss this year." It cut that position by one-third in the third quarter, and the remaining stake extends into next summer. Greenlight said it still believes the market is pricing in more hikes than will occur and that it would recover part of its loss if that proves correct. The fund did not disclose other macro positions beyond a sizable gold holding, which fell about 3.7 percent over the past 30 days according to GoldPrice.
Equity performance was mixed. Health care providers Acadia Healthcare (a top-five holding, up 9 percent) and Centene (up more than 10 percent) helped results, as did Fortune Brands, which rose nearly 18 percent in a position established in the second quarter. PENN Entertainment gained 8.5 percent and PG&E climbed 7.6 percent. Green Brick Partners, the largest long at roughly 17 percent of U.S.-listed longs, fell about 8 percent, Brighthouse Financial dropped 12 percent and has lost one-third of its value since its mid-July peak, and Fluor declined 2 percent.
In the third quarter Greenlight also initiated several smaller positions. ADI Global Distribution, recently spun off from Resideo, has an average purchase price of $21.30 and closed October at $17.48. Greenlight cited demand for security and monitoring solutions as a commercial growth driver. Century Aluminum, the largest U.S. primary aluminum producer, carried an average purchase price of $41.77 and closed Friday at $33.70; Greenlight credited tariffs and a tight aluminum market with significantly improving its earnings. Canal+, traded in London, was bought at an average of £2.4 ($3.20) and closed Friday at £2.2.
The fund's macro book has been the principal source of its underperformance over the past two years. Macro lost 6 percent over the first nine months of the year, with long positions contributing a 5.1 percent gain, per Greenlight's third-quarter letter. In the third quarter alone, the macro book detracted 2 percent. Greenlight acknowledged that it wrongly bet the Federal Reserve would cut interest rates, a error it said cost the fund "a couple of points more than the macro book's total loss this year." It cut that position by one-third in the third quarter, and the remaining stake extends into next summer. Greenlight said it still believes the market is pricing in more hikes than will occur and that it would recover part of its loss if that proves correct. The fund did not disclose other macro positions beyond a sizable gold holding, which fell about 3.7 percent over the past 30 days according to GoldPrice.
Equity performance was mixed. Health care providers Acadia Healthcare (a top-five holding, up 9 percent) and Centene (up more than 10 percent) helped results, as did Fortune Brands, which rose nearly 18 percent in a position established in the second quarter. PENN Entertainment gained 8.5 percent and PG&E climbed 7.6 percent. Green Brick Partners, the largest long at roughly 17 percent of U.S.-listed longs, fell about 8 percent, Brighthouse Financial dropped 12 percent and has lost one-third of its value since its mid-July peak, and Fluor declined 2 percent.
In the third quarter Greenlight also initiated several smaller positions. ADI Global Distribution, recently spun off from Resideo, has an average purchase price of $21.30 and closed October at $17.48. Greenlight cited demand for security and monitoring solutions as a commercial growth driver. Century Aluminum, the largest U.S. primary aluminum producer, carried an average purchase price of $41.77 and closed Friday at $33.70; Greenlight credited tariffs and a tight aluminum market with significantly improving its earnings. Canal+, traded in London, was bought at an average of £2.4 ($3.20) and closed Friday at £2.2.
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