Greenlight Capital started the fourth quarter in a strong position.
The hedge fund firm headed by David Einhorn was up 1.9 percent in October, compared with a 10-basis-point gain for the S&P 500 and a 1 percent rise for the Nasdaq Composite. Even so, the value-driven hedge fund continues to lag the broader market. It is now up 11 percent for the year compared with a 20 percent increase for the two major benchmarks.
Institutional Investor previously reported that in its second-quarter letter, Greenlight said it had maintained what it considers to be a neutral net long exposure of about 40 percent. And in the third-quarter letter, dated October 15 and obtained by II, it told clients it remained “conservatively positioned with low exposure to equity beta. . . . We are likely to continue to underperform a rising market, as we have all year, but we don’t wish to position ourselves to lose money should the market continue to rise.”
The conservatively positioned hedge fund manager thinks the market is in the late stages of a bull market and doesn’t want to be hurt when the markets go down.
“The market isn’t just making all-time highs,” Greenlight told clients in the letter. “It is, by many measures, the most expensive stock market that we have seen since the founding of Greenlight.”
It’s unclear how Greenlight’s short book and macro book fared in October. But three of the five largest long positions (and five of the eight largest longs) were in the black.
However, the firm’s biggest loser was also its largest long position: Green Brick Partners, a homebuilding and land development company accounting for about 30 percent of the portfolio. Green Brick lost more than 17 percent for the month but was still up about 33 percent through the first ten months of the year. “The company continues to lead the industry in gross margins and has distinguished itself from its peers,” the third-quarter letter noted.
Hewlett Packard, down 1 percent for the month, became the firm’s fourth-largest U.S. long positioin in the second quarter when Greenlight more than doubled its stake.
The firm’s other top holdings made money last month: Coal giant Consol Energy, the second-largest long, climbed 6 percent. Annuities marketer Brighthouse Financial jumped more than 8 percent. And Belgian chemicals company Solvay gained about 5.3 percent.
Among other major positions, ODP Corp., formerly known as Office Depot, rose 4.3 percent in October. In the second quarter, Greenlight boosted its stake by nearly 30 percent.
Meanwhile, IT infrastructure services provider Kyndryl Holdings fell nearly 5 percent last month. It dropped from Greenlight’s top-five positions in the second quarter when the hedge fund slashed its stake by about one-third.