Einhorn Hedges Against Interest Rates; Shorts Yen, Yuan, AUD

Einhorn Hedges Against Interest Rates; Shorts Yen, Yuan, AUD
David Einhorn InsiderMonkey (CC BY-ND 2.0)

David Einhorn Greenlight Capital Re, Ltd. (NASDAQ:GLRE)’s investment portfolio has significant exposure to both interest rates and has multiple currency plays, according to the firm’s 10K filing.

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Einhorn, Greenlight Capital Re, Ltd. (NASDAQ:GLRE) – Interest rate and currency exposure

If the market saw a 100 basis point increase in interest rates, Greenlight Capital Re, Ltd. (NASDAQ:GLRE) would net nearly a 1% profit in the portfolio.  In terms of executing the trade, the portfolio is exposed to the yield curve primarily through debt instruments, but also interest rate options and credit default SWAPs.

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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.

Einhorn, Greenlight Capital Re, Ltd. (NASDAQ:GLRE) – Sector exposure

In regards to the funds stock holdings, he is nearly two to one long to short, according to the 10K.  The hedge fund’s most bullish plays are in technology, where the portfolio is 55.9% long relative to just 9.3% short.  The second largest long position is in financials, with 14.2% long against 8.8% of the portfolio short in the sector.  The largest sector the fund is short is consumer cyclical, short 12.6%, while the long position in the sector is 13.8%.  David Einhorn must not like the consumers because he is also short consumer non-cyclicals by 10.4% while net long just 3.5%.  The only other sector where Greenlight has shorts out pacing longs is basic materials, where the portfolio is short 9.9% and long just 2.9%.

In the firm’s January 21 investor letter, reported in ValueWalk, detailed Greenlight’s individual stock holdings, which included longs such as Apple Computer, General Motors, Marvell Technology Group, Micron Technology and British Petroleum.  In regards to BP, Greenlight established a position in BP at an average price of $47.39 and identifies fair value near $70. “The Deepwater Horizon oil spill was nearly four years ago,” the investor letter said. “Since then, investors have focused on the ensuing legal cases regarding clean-up and restitution efforts, while overlooking BP’s improved return on capital in its core businesses. Allowing for more negative legal outcomes than BP has currently provisioned, we believe the company’s net asset value (NAV) is nearly $70 per share. It can therefore create substantial value by selling assets at or above NAV and using the income to repurchase stock at a significant discount.”

Shorts included Chipotle Mexican Grill, Inc. (NYSE:CMG), Steel and a macro Yen short.  The 10K filing indicated this short has become more than just the yen, but also additional pacific rim currencies.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)www.valuewalk.com
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