Leon Cooperman's Omega Advisors gained 9.2 percent, net of fees, in the first quarter of this year according to a shareholder letter obtained by ValueWalk. The long equity portfolio contributed major gains whereas their credit portfolio also added +180 basis points to gross performance. Omega's short equity book as well as futures and options trades detracted in Q1.
The hedge fund netted the largest individual gains from a position in structured credit, whereas SLM Corp (NASDAQ:SLM), Tetragon Financial Group Limited (AMS:TFG) Atlas Energy LP (NYSE:ATLS) and Sprint Nextel Corporation (NYSE:S) are also among top performers. The fund was down in its positions in SandRidge Energy Inc. (NYSE:SD), Altisource Portfolio Solutions S.A. (NASDAQ:ASPS) and Energy XXI (Bermuda) Limited (NASDAQ:EXXI).
Cooperman on US and Japan Markets
In the quarterly market commentary, Cooperman said that U.S. markets are overdue on a correction, however he thought that this rally would continue through most of the year and the correction will only be minimal. Cooperman says that there will be a "a day of reckoning for this dysfunctional fiscal policy". The hedge fund believes that in U.S. fixed income assets, structured credit provides the only attractive opportunity, and all other alternatives are weak.
Omega only has one macro position for now, which is based on a long NIKKEI 225 (INDEXNIKKEI:NI225) against short yen theme. The managers think that Japan's fiscal policy can trigger a currency war as emerging markets see their economies get stalled by a weak yen. In addition to this drawback, abnormal inflows are coming into European and U.S. equity and bond markets which are distorting the real picture. Cooperman wrote,
"The large decline in the yen could reverse, destabilizing foreign-exchange markets. Second, the in-process Japanese-yen depreciation is afflicting economies around the globe including Korea, Taiwan, Germany, U.S., and emerging economies generally.... Stated bluntly, one cannot rule out the risk of currency wars, particularly given the expectation that a 2% target for inflation will require a ¥120 to the dollar versus the current ¥99."
Cooperman and portfolio manager Steven Einhorn note that over a sufficient period, shorts in EUR, US treasuries and developed country sovereign debt will all be profitable, but they don't see the current scenario as positive entry point into such positions. The hedge fund thinks that M&A deals would pick up steam in the next years as there is no shortage of liquid companies and cheap debt.
LyondellBasell, Sirius XM Radio and Others
Omega thinks that the investment in LyondellBasell Industries NV (NYSE:LYB) is the fund's gateway to tap into the byproducts of North American shale gas development. The shale boom has lowered natural gas liquids' prices, one of LYB's major raw materials. Omega thinks that the low unit costs will help LyondellBasell Industries NV (NYSE:LYB) to maintain itself as a low cost global producer. On the subject of Sirius XM Radio Inc (NASDAQ:SIRI), the fund thinks that the media company has a lot of opportunities in the car market where it can increase its subscriber base. Cooperman also shared his bullish thesis on Covidien plc (NYSE:COV), Kinder Morgan Inc (NYSE:KMI) and QUALCOMM, Inc. (NASDAQ:QCOM) in the investor letter.