One of the SAC Capital alums, Tourbillon Capital gained a 15% net return in the third quarter of this year, which is head-to-head with the return on the S&P 500 (INDEXSP:.INX) in the same period, according to a shareholder letter reviewed by ValueWalk. The long/short equity hedge fund was founded by Jason Karp in January this year and for a newly launched fund, it has generated a pretty decent return.

Karp is currently managing $350 million at Tourbillon, and has worked at George Weiss Associates and Carlson Capital previously. Tourbillon also hired Amy Zipper from Carlson Capital as chief operating officer and Brian Kessler of Argonaut Capital Management as chief financial officer. Despite Karp’s experience at SAC Capital, a hedge fund which applies a computer-driven stockpicking approach, Karp uses fundamental analysis, which is evident from the fund’s quarterly letter.

Gains from J.C. Penney short

The hedge fund made big gains from its short against J.C. Penney Company, Inc. (NYSE:JCP), according to a quarterly letter seen by ValueWalk. J.C. Penney Company, Inc. (NYSE:JCP) detracted 47% in the third quarter and is overall down 55% for the year. JCP has decorated the short book of noted hedge fund managers David Einhorn and James Dinan. A bet against the department store chain was Greenlight Capital’s best performing short in the second quarter, and much like Einhorn, Karp also counts J.C. Penney Company, Inc. (NYSE:JCP) as his best performing short. James Dinan’s York Capital had a negative bet in JCP’s debt, and was one of the earliest ones to publicly criticize the business of the retail store chain. J.C. Penney Company, Inc. (NYSE:JCP) is a crowded short bet, the net short interest in the company was nearly 29% of outstanding shares at the end of November.

Tourbillon initially shorted the stock at $19 and then increased the position around $14; shares closed at $8.33 last Friday. The fund closed its positions just before J.C. Penney Company, Inc. (NYSE:JCP) raised new capital.

In Tourbillon’s thesis, J.C. Penney Company, Inc. (NYSE:JCP) had reasons to slide much further as the company’s expenses were through the roof and it was set to burn more cash to make ends meet. On top of the management troubles and haphazard business strategy, the company is also facing tough competition from other much better department stores, explains Tourbillon. In the letter, Tourbillon points out that Bill Ackman selling J.C. Penney Company, Inc. (NYSE:JCP) was not a “I am fed up” exit but actually was a sale meant to prevent even more brutal losses. While Ackman was wrong about J.C. Penney Company, Inc. (NYSE:JCP)’s worth in the beginning, he was right in thinking that the stock has the potential to go even lower, says Karp.

Boring shorts

Tourbillon Capital is bearish on the food staples industry; the fund calls this short theme a boring idea when it comes to choosing positions in most hedge funds. Karp says that these not-so-exciting shorts have less chance of blowing up in your face as they attract less media attention. The hedge fund is short General Mills, Inc. (NYSE:GIS), Campbell Soup Company (NYSE:CPB), Hormel Foods Corporation (NYSE:HRL) and SYSCO Corporation (NYSE:SYY)
Karp and his team think that the easier it is for the market to identify a flaw or an upside, the more likely it is for it to be reflected in the stock price, which in turn makes it harder to make a profit. The  hedge fund thinks that the above-mentioned names in the food staples industry are overvalued and will eventually tumble due to high input costs, increasing dislike among consumers for processed foods and brutal competition from cheaper brands. Despite losses in these positions, Tourbillon is not backing down.