The tide has turned for the worse for one of Europe’s best performing hedge funds. Crispin Odey’s flagship hedge fund, Odey European has suffered a 4.63% decline for the year after slipping 7.2% in March, according to HSBC Hedge Weekly. We have covered this hedge fund extensively and this is the first time the fund’s monthly return has fallen in such a big way.
Trouble in Odey’s top longs
Odey’s top longs, Sky Deutschland AG (FRA:SKYD) (ETR:SKYD) and D.R. Horton, Inc. (NYSE:DHI) fell 17% and 12% respectively in March, contributing to the fund’s losses. One of Odey European’s top shorts, Peugeot SA (EPA:UG), rose 6.6% in March. The short accounts for 5.5% of the fund’s exposure. The top holdings that were profitable included Sports Direct International Plc (LON:SPD) and Delta Air Lines, Inc. (NYSE:DAL).
Odey’s massive short portfolio
According to Novus Partners, Odey Asset Management has 27 shorts disclosed in Europe which amount to a market value of $1.4 billion. Odey had been doing well in its bets against Ashmore Group plc (LON:ASHM) (OTCMKTS:AJMPF), Aberdeen Asset Management plc (LON:ADN) and J Sainsbury plc (LON:SBRY).
Odey’s bad luck seems to have persisted in its other funds as well, even in the long-only strategies. Odey OPUS fund (AUM $690 million) plunged 2.7% in March, trimming YTD return to a mere +0.3%, according to monthly letters seen by ValueWalk. Odey Odyssey was flat in March (YTD return +1.9%) whereas Odey Pan European Fund ($750 million) was down 3.2% in last month and is now up just 2% for the year. These funds are long-only, UCITS type, except for Odyssey which is a long-short strategy. The funds have cut their net exposure to 50%, and have also scaled back the long exposure where needed.
Confidence in U.S recovery
In the monthly commentary from Crispin Odey, he expressed his conviction in U.S recovery once again. He said that Europe will show less real growth whereas emerging markets will plunge yet again after a brief rally. Odey remains bearish on China’s growth target as well and said that the economy will crumble – the letter said that China could be forced to devalue Renminbi further. Regarding emerging markets in general, Odey was equally unexcited,
“Emerging market economies should suffer the most. Their currencies could fall far, but they may choose exchange controls rather than allow market forces to dictate policies. For the West there will be pain, but out of it will come a better allocation of resources. The winners will be those who incentivised individuals to do the right thing. 2014/15 will be remembered for the Balance of Payments crisis making a comeback.”
Odey Odyssey is managed by Tim Bond, and the fund has $420 million in assets. Odey European, Pan European and OPUS are managed by Crsipin Odey. While most of these fund’s assets are put in equities, they have a few macro positions as well. Odey European had a massive short in Japanese 10-year bonds whereas Odyssey has 20% of its net exposure invested in a long Indian Rupee position.
UPDATE: 4/18/2014 12:05PM EST ValueWalk has just obtained Crispin Odey’s March letter to investors. The content is nearly identical to what the legendary value manager says in his February letter. The fund is down close to 9% for the year. The short book returned -1.7% in January, the biggest negative contributors were Banca Monte dei Paschi di Siena (-38bps). The best were Lloyds Banking
Group (+23bps), Bank of Ireland (+18bps) and Trinity Mirror (+15bps).
Big gains in the long portfolio came from Sports Direct (+49bps), Signet Jewelers (+32bps) and Delta Air Lines (+24bps).