We have been wanting to know more about the investments of Odey Asset Management, a London based hedge fund with $7 billion in AUM which may be lesser known in the U.S. but has wooed us with its apparently relentless stream of huge returns. Odey European has returned +25 percent through May 14 for the year and is one of the best performing funds of 2013. OEI was up 16.5 percent as of the end of April.
We see a lot of Odey in the short disclosures from Europe but the allocation still makes up a small portion of overall fund assets. Odey has been bearish on metal mining which was evident from its short positions in the U.K., and the fund also holds shorts in Fortescue Metals Group Limited (ASX:FMG) and ArcelorMittal (NYSE:MT) (AMS:MT). Its profitable shorts have been in Kazakhmys plc (LON:KAZ) (HKG:0847) and Banca Monte dei Paschi di Siena SpA (BIT:BMPS).
Take a look at all of Odey Asset Management’s shorts in Europe.
Odey Returns Since Inception
In the hedge funds’ Q1 conference call (a transcript of which was obtained by ValueWalk), Crispin Odey happily shared the immense return of capital that the fund has generated since its inception. The actual earnings of flagship Odey European are up 14x since 1992 and are up 7x compared to the benchmark indices. The initial investor in Odey is now getting 140 percent return on his capital. The fund’s stock picking strategy focuses on cheap growth companies that have unexplored potential.
On Gold, Inflation and Lord of the Rings
On the subject of gold, Odey is one of those investors who is not overwhelmed by its luster. He said that the present state of the world economy is not going to be supported by gold. He was not exactly dismissing the metal’s power—in his opinion gold will gain huge returns when inflation is on the rise. In his view the present state of world economy hinges on financial assets and in terms of regions, on the U.S. and Japan. Odey likes the employment numbers and the growth in the U.S. housing market. He thinks that the general well being of the global economy, specifically that of Europe, is dependent on growth in the U.S., perhaps setting an example for the Eurozone to wade though its own crisis.
Odey jokingly says that Europe has to look anxiously at the West for hope, just like Gandalf said in the final installment of Lord of the Rings.
Odey Asset Management bought Delta Air Lines:
Odey Asset Management bought Delta Air Lines, Inc. (NYSE:DAL) in the last quarter. Odey thinks that high jet fuel costs are a benefit for big players and beats out competition from other smaller companies. The fund thinks that the value of Delta can rise to 11x earnings.
Speaking of European companies, Odey was not thrilled in the way that ownership in German companies does not give any rights to the shareholders which act more as spectators to the maneuverings of company’s board with no actual say of their own. Odey also points out a fundamental flaw in European banks which drives away investors—the low borrowing cost for consumers add no benefit to the bank itself and as a result contribute negligibly to profits. Odey has a short position in 0.5 percent of Banca Monte dei Paschi di Siena SpA (BIT:BMPS)’s shares, a holding that has been profitable for the fund.
On European banks, Odey added that Germany’s banking sector is just as weak as the rest of the Eurozone, if not more. As for Italy, his opinion was that its industries are too protected, and that is one of the reasons for its failure.