It would be fair to say that Crispin Odey and the manager’s funds had a mixed second quarter. For Q2 the flagship OEI fund returned -0.93%, OEI Mac ($) returned -0.08% and Odey Swan (€) returned -2.08%. Odey’s long-only funds Opus (£), Odey Allegra International (€) and Odey Pan European (€) returned +1.44%, -3.37% and -6.70% respectively.
But steady second quarter returns don’t make up for Odey’s past mistakes. Indeed, year-to-date the OEI Mac fund has lost around 30% and over the past three years the fund is down by 39%. Further, the long/short Odey Swan Fund has been described by FE Trustnet as “one of the worst performing funds available to UK investors in 2016” during April of this year Swan’s losses were more than double the next worst performer in the Investment Association universe of more than 3,500 funds. At the end of June, the fund was down 24.7% for the year, down 27.1% over three years and down 28.5% since inception.
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Odey seems to be on gold to rebuild his reputation in the investment world. During the second quarter, the OEI fund returned -0.93% for investors, a performance that would have not been possible if were not for Odey’s oversized gold positions. Indeed, during the quarter the fund’s long equity book made a negative impact on performance -4.1% after currency hedging, after currency hedging the short equity book posted a negative return of -1.2%, active currencies gave an overall negative contribution of -0.4%, government bonds returned +0.3% and commodities +4.6%, most of which was attributable to Gold positions. In fact, over the past 12 months, all of Odey’s equity positions have produced negative returns.
Odey is well known for his cautious stance on equity markets and frequent warnings that the current market rally is built on sand. His Q2 presentation to Odey OEI investors doesn’t deviate from this way of thinking. Here are some of the most interesting charts from the presentation.
Odey Q2 Review: Swatch, Insurers And Netflix
Odey starts by pointing out that the S&P 500 and FTSE 100 are now both trading at valuations not seen since the pre-crisis bubble despite growing macro headwinds.
Odey blames central banks, which have dramatically increased the money supply through QE for this bubble.
But despite this growth in the money supply and efforts by central banks to stimulate economic growth, productivity is still breaking down and the global economy is struggling to reach escape velocity.
A sector Odey likes as a short is insurers. He believes that insurers no longer deserve the “defensive” status they’ve historically been given as sales will soon start to slide. Low-interest rates will hit the sales of life savings products, increase customer churn and once consumers stop buying these products, insurers will become net sellers of assets.
As well as being short the insurance sector, Odey is also short Swiss watch maker Swatch as the company’s sales decline and inventory levels rise.
And finally, Odey is short Netflix for the reasons laid out below.