Lagging Hedge Fund Manager Hopes to Turbo-Charge Returns

Friday, November 7, 2014 Lagging Hedge Fund Manager Hopes to Turbo-Charge Returns   by Jamie Dlugosch   Institutions paying huge fees to hedge fund managers have gotten the short end of the stick this year.   In a recent letter to shareholders we learn just how rough it has been for Greenlight Capital's David Einhorn.   Net of fees, his hedge fund is up only 2% in 2014 compared to a significantly higher rate of return for the S&P 500.   No wonder index fund pioneer Jack Bogle is gloating.     FURTHER READING   The End of Chemotherapy As We Know It - 581% Gains Could Be Yours!   This crucial medical breakthrough promises to change how the world treats Leukemia! When word gets out - shares in THIS unknown company could shoot up 581% in just a few months! See why HERE...     In the third quarter -- a period not including the very rough-and-tumble month of October -- Einhorn's fund lost 3.9% versus a fractional gain of 0.7% for the S&P 500.   (I should pause now and take a bow. My own model portfolio for subscribers of my paid newsletter service generated a positive return of 2.9% in the third quarter. And I did that with one hand tied behind my back, because we don't short individual stocks. Had I done that, my gains would have been even more impressive.)   Hurting Einhorn's performance were ill-advised shorts in U.S. Steel (NYSE: X) and Irish drug company Mallinckrodt (NYSE: MNK).   Interestingly, the short positions that Einhorn closed out during the third quarter were Keurig Green Mountain (NASDAQ: GMCR), Joy Global (NYSE: JOY) and Under Armour (NYSE: UA).   None of these performed according to plan.   On the surface it looks like Einhorn is zigging when he should be zagging.   That is a common error often made by amateur investors. One would think a man of Einhorn's stature would perform differently.   Still one quarter or even one year doesn't write the book on Einhorn's performance.   He's had many, many other periods of significant outperformance. Thus following his lead is still a good idea.   New long positions opened in the third quarter include CONSOL Energy (NYSE: CNX) and EMC Corp. (NYSE: EMC).   Both of those positions are essentially flat since the end of the third quarter, which doesn't help Einhorn dig out his 2014 hole.   On the short side, Einhorn is vehemently against the so-called bubble stocks. In the investor letter he notes that the bullish thesis on such names will ultimately be proven false.   He specifically mentions Amazon.com (NASDAQ: AMZN) as one of the bubble stocks that will likely collapse.   He does not say and Greenlight would not comment specifically as to whether the fund was actually short Amazon.   Greenlight investors are hoping he was just that, as shares of Amazon are down substantially since the end of the third quarter.   Ultimately, Einhorn will need the power of his portfolio to turbo-charge his returns if he is to move back to the top of the hedge fund industry.    So in addition to the shorts he will need long positions that include Micron (NYSE: MU), Apple (NASDAQ: AAPL) and SunEdison (NYSE:SUNE) to gain more than the market between now and the rest of the year.   Whatever transpired to create the underperformance should be looked at as a gift to follow one of the brightest minds in the business.   Owning or shorting the new positions taken in the third quarter would be a good place to start.   Jamie Dlugosch Editor Investor Research Institute   To Read More From Investor Research Institute Click Here
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