David Einhorn, founder and president of Greenlight Capital, recently discussed the fund’s 2013 performance in a conference call. The transcript of the call, as well as some post-game commentary by UBS, is below.
David Einhorn on GLRE call:
“Thanks, Bart, and good morning, everyone. The Greenlight Capital Re, Ltd. (NASDAQ:GLRE) investment portfolio returned 6.6% in the fourth quarter and 19.6% in 2013. During the quarter, our longs outperformed the S&P 500 as shorts went up less than the market and macro positions led by the yen were a slight contributor. This is also the case for the full year as we generated alpha in both our long and short portfolios and had gains in our macro positions.
During the quarter, the largest contributors to our result were long positions in Apple Inc. (NASDAQ:AAPL), Marvell Technology Group Ltd. (NASDAQ:MRVL), and Micron Technology, Inc. (NASDAQ:MU). The biggest detractors were short positions in Chipotle Mexican Grill, Inc. (NYSE:CMG) and U.S. Steel. Our portfolio performed well in the melt-up environment in 2013 as investors [ph] priced in (06:43) lower unemployment and improved home prices. A number of new long positions contributed to our performance.
We also avoided getting hurt too badly in our short portfolio by having minimal exposure to the most speculative stocks, many of which appeared to have completely disconnected from normal valuation methods.
We established a position in Micron Technology, Inc. (NASDAQ:MU) in the second half of the year. We believe the company can earn $4 per share in the calendar year 2014 and it is well-positioned to benefit from favorable dynamics from consolidation in the DRAM and flash memory industries. We also added two energy [ph] bid (07:19) long positions during the quarter, Anadarko Petroleum Corporation (NYSE:APC) and British Petroleum.
The market ended the year on a strong note after a huge move that was supported mostly by multiple expansions as earnings growth was lackluster. In 2013, the market rewarded many companies for beating earnings after they have lowered guidance. This trend is not likely to continue indefinitely.
During the month of January, our net exposure decreased about 10 points to 45% as we reduced our exposure on both long and short size. We continue to hold macro positions in gold, [ph] short in yen and short sovereign debt. Our goal in 2014 remains to protect capital in an uncertain environment and define investment opportunities that will generate alpha on both of our long and short portfolios. 2013 was a good year for Greenlight Capital Re, Ltd. (NASDAQ:GLRE). We had a decent results on both our underwriting and investment activities and solid growth in fully diluted book value per share. We believe we can do better on both sides of our dual engine strategy but are pleased with how the past year has shown our business strategy at work.”
Brian Meredith of UBS, in a report today:
“At 12/31, GLRE’s investment portfolio was 124% long and 70% short (106% long and
71% short at 9/30/13). At year-end 2013, Greenlight Capital Re, Ltd. (NASDAQ:GLRE)’s portfolio had the largest net long in the technology sector (47% net long) and was net short the basic material and noncyclical consumer sectors (7% and 6.9% net short, respectively). The investment portfolio was up 6.6% in 4Q13. The full year 2013 gross investment return of 24.6% was driven by long portfolio gains (+41%), while shorts had losses (17%). GLRE believes a rising equity market could lead to a potentially unstable environment, as earnings are more challenging and emergency policies continue. Facing an uncertain environment, Greenlight Capital Re, Ltd. (NASDAQ:GLRE) plans to continue to hold significant positions in gold, macro hedges and short positions in sovereign debt, for the foreseeable future.”
As we reported yesterday the GLRE 10K noted:
“In regards to currencies, a 10% increase in the value of the U.S. dollar relative to the Japanese yen would yield nearly a 2% return in the portfolio, while a similar increase in the dollar against the Chinese yuan and the Australian dollar would net just under a 1% profit respectively. If the U.S. dollar were to increase 10% in value relative to the British pound, however, the portfolio would yield a -.4% drop in value, indicating a long pound short Pacific Rim – Aussie, yuan, yen – trade.”