Greenlight Capital Down -2.6% in Q2/16, Exits Macy's Position

Jul 26 2016 | 11:55pm ET

David Einhorn's Greenlight Capital lost 2.6% in the second quarter and is up a marginal 0.4% so far in 2016, according to an investor letter released today. 

The $9 billion equity hedge fund enjoyed solid performance from investments in gold and gold mining stocks during the period following Britain’s Brexit vote, the letter revealed, although Einhorn also disclosed exiting out of U.S. retailer Macy’s at a loss. Greenlight sold its position at $32.08, the letter said, a significant decline from its entry at $45.69 disclosed in January.

In the letter, Einhorn said the company’s reduction of earnings guidance this year  "invalidated our thesis that 2016 earnings would benefit from easy comparisons later in the year."

Greenlight also faced headwinds on its long position in Apple, as earnings estimates for the company were steadily reduced. The fund is “nearly breakeven” on the position in 2016, according to the letter.

Otherwise, most of the quarter’s losses came from Greenlight’s short positions, Einhorn wrote, including on an “undisclosed oil fracking short” and Amazon, which reported better results than the hedge fund expected. On the other hand, Greenlight used the selloff immediately following the Brexit vote to close several other short positions.

While Einhorn does not believe Britain’s decision to leave the EU will by itself be a significant economic event because “the U.K. economy is not large enough for even a devalued British pound to have a large direct impact on global trade,” he does believe it has implications for U.S. monetary policy.

It should not be a surprise, Einhorn wrote, if the Fed takes tightening off the table for a period of time on account of the vote. In addition, “other central banks have made various promises to double down on their failing policies as they deem appropriate. Government bond prices have soared," the letter continues, "as the market sense that a global monetization of large amounts or even all government debt may be in our future."

At the end of the quarter, Greenlight’s largest disclosed long positions were AerCap, Apple, CONSOL Energy, General Motors and gold, with an average exposure of 96% long and 69% short, the letter said. 

Greenlight, which Einhorn founded in 1996 with $1 million in initial capital sourced from family and friends, has booked annualized returns of approximately 9% since inception. It has experienced only two down years – in 2008 amid the financial crisis, and last year.  


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