Kleinheinz Capital Bets Close to $1B Against German Bunds

Kleinheinz Capital Bets Close to $1B Against German Bunds

Kleinheinz Capital Bets Close to $1B Against German Bunds

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Kleinheinz Capital Management, a fund with close to $1.8 billion in assets under management, had a positive in June with a gain of 1.34% (and a negative 1.35% year to date) acording to sources familiar with the matter. The fund is down by 8.46% for the quarter to date.

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Kleinheinz is one of the most successful funds operating in the world today. It’s flagship fund, the Global Undervalued Securities Fund, has numbers to back that claim up.  Since its inception, the annual return from the hedge fund comes in at 21.46%, a number almost any hedge fund would be proud of.

The firm has, however, suffered rocky fortunes in recent months, having closed 2011 down a whopping 27.19%, that number biting sharply down on the average yearly return. June’s numbers will hopefully be a significant turnaround for the firm.

Today may not be the best day to begin that turnaround. Like many funds, the firm’s top holding is Apple Inc. (NASDAQ:AAPL), which it holds $165.9 million of. That makes up around 9.4% of the total assets held under management in the firm. Apple released its third quarter earnings figures today, missing analyst’s estimates and causing a drop in the value of the stock in aftermarket trading.

The firm’s top five holdings are, in order, Apple Inc., China Mobile Ltd. (NYSE:CHL) of which the fund holds $129.8 million, Monsanto Company (NYSE:MON) at $112.2 million, Lukoil Holdings at $77.1 million, and Cheniere Energy Inc. (NYSEAMEX:LNG) at $76.4 million.

The fund continued to suffer losses, owing to its short against the Yen. That bet was somewhat responsible for the difficulties suffered by the fund last year, though it garnered them returns in the first quarter of 2012. The firm remains confident that Japan will be forced into a position where it is forced to devalue its currency in one way or another, possibly some time this year. The fund has short positions  on the Canadian and Australia dollar, and the Brazilian Real. The hedge fund has placed a $900 million (notional value) bet against Germany, with credit default swaps (CDS) on German Bunds. According to Sam Jones of The Financial Times, John Paulson’s Paulson & Co, also holds credit default swaps on German bonds.

Regarding the United States, the fund is more optimistic. It maintains what it calls moderate exposure in the market, sticking to blue chip stocks, along with financials and large cap technology companies, like Apple. That exposure may seem more vulnerable given today’s results.

Kleinheinz maintains a special interest in its fifth largest holding, Cheniere Energy, Inc. (NYSE:LMG). That company is on the cutting edge of technology and logistics for exporting natural gas out of the United States. The comparatively low price of the energy source in the United States means that export could provide a lucrative prospect. Kleinheinz certainly believes so, and is backing up that idea with almost eight million dollars.

Kleinheinz has not been performing on par with past performance in recent months. The fund is likely to raise the ire of investors if the problems persist any longer. There needs to be a change in performance at the firm, as the year to date figures show its losses at 1.35%.

Cheniere Energy, Inc. (NYSE:LMG), if it picks up like Kleinheinz believes it will, could be the vanguard of the change in fortunes, otherwise one of the best performing funds may settle back into mediocrity.

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