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Three Bridges Looking For Opportunity In Greek-Related Volatility

Three Bridges has increased its net long exposure in Europe, but it has also increased its gross exposure in Germany significantly

After losing 2.1% in 2014, Three Bridges Capital is up 2.8% for January on the strength of European equities in general, but it’s especially notable how much more of its exposure is based in Germany compared to the end of December.

“European markets remained volatile during the month with a number of major events occurring in rapid succession,” writes Three Bridges managing partner and former Omega Advisors partner Gene Salamon in a recent investment letter. “Their impact was relatively short-lived and we are encouraged by the resiliency of European markets so far this year.”

Three Bridges exposures

Three Bridges increases its gross exposure to German stocks

Three Bridges has increased its net long exposure from 63% at the end of 2014 to 68% at the end of January, and it has one fewer core short position than before (though short exposure is steady at 84%). Daimler AG and Danske Bank are no longer among the fund’s top 5 long positions, replaced by SAP SE and BMW, though Bayer AG, Allianz SE, and UBS Group remain.

What’s more striking is that Three Bridges has increased its gross exposure to Germany from 52.2% (net 12% long) at the end of 2014 to 76.6% gross exposure (net 13.4% long). It’s also reduced gross exposure to the UK from 50.9% (net 12.9% long) to 38.3% (net 12.5% long). After the surprise decision by the Swiss National Bank to stop pegging its currency to the euro, Three Bridges also reduced its net exposure to Swiss stocks from 3.7% long to 2.2% long, though it sounds like it may have already been pulling money out regardless.

“As a result, the Franc spiked dramatically with negative follow-through to equity prices there. Fortunately we had only modest exposure to Swiss-based companies having found more attractive investments elsewhere, so the portfolio impact was limited,” writes Salamon.

Three Bridges indicators

Salamon on the lookout for opportunities caused by recent volatility

Since the letter is dated last Friday, it’s not clear if Salamon was aware that Greece and the Eurogroup had reached a tentative deal when he wrote it. But he mentions that he expects Greece to remain in the euro zone, but for it to also remain in the headlines in the months ahead.

“This suggests to us that any market volatility surrounding current developments in Greece is likely be short lived and might well offer investment opportunities,” he writes.

He notes further:

“Markets increasingly seem to understand that at only 2% of European GDP, Greece has limited impact on the broader opportunity that has developed across the region.”

Correction: A previous version of this article said that Three Bridges Capital was looking for investment opportunities in Greece. Three Bridges Capital is looking for opportunities caused by volatility in Europe related to Greek debt negotiations, but the fund is not invested in Greece itself.