We analyzed the historical 13F filings of Greenlight Capital, managed by David Einhorn, and our analysis showed that his large-cap stock picks returned 0.4% per month between 2008 and 2012. This number is slightly above S&P 500 Index’s 0.29% monthly return. However, we use Carhart’s four factor model to adjust for risk and Einhorn’s stock picks have a monthly alpha of negative 6 basis points after making these adjustments. Our research in general has shown that hedge funds or any other investor group can’t generate enough outperformance to justify their high fees when it comes to large-cap stocks. There are a few exceptions but David Einhorn isn’t one of them. His large-cap stock picks performed better earlier in his career but they may be a result of survivorship bias. He was already well-known in 2008 which is why we use the 2008-2012 period to judge his stock picking ability in this space. Our research also shows that David Einhorn is a phenomenal stock picker in the smaller-cap stocks. We believe investors can generate better returns if they avoid Einhorn’s large-cap picks and focus on his smaller-cap stocks. By using a similar approach Insider Monkey’s small-cap hedge fund strategy returned 88% since the end of August 2012 and outperformed the market by nearly 50 percentage points (see the details here). In this article, we will take a closer look at Einhorn’s top 5 large cap picks.
Apple Inc. (NASDAQ:AAPL) is the largest position in Einhorn’s portfolio. He had $1.35 billion invested in the technology giant at the end of 2013. Einhorn has been very bullish about Apple for a very long time. In 2012, when the stock was at $700, Einhorn predicted Apple reaching $1000. Apple is also the third most popular stock among 700 hedge funds tracked by Insider Monkey (see the complete list here). Carl Icahn is the most bullish billionaire hedge fund manager about Apple with a $2.7 billion position at the end of the fourth quarter.
Second on the list is Micron Technology (NASDAQ:MU), in which he owns 47.7 million shares, for a roughly 5% stake, worth $1.0 billion. This is a new position Einhorn initiated during the fourth quarter of 2013, joining 96 other hedge fund managers, including Seth Klarman of Baupost Group (who is the largest shareholder among the funds that we track), that own positions in the $25.9 billion market cap semiconductor company.
General Motors Company (NYSE:GM) is Greenlight’s third largest holding, with its 17.0 million shares, or a 1.3% stake, worth $696.7 million. Its recent recall fiasco notwithstanding, the $55.8 billion market cap auto manufacturer has been a popular stock among hedge funds, with the likes of Warren Buffett, James Dinan, David Freelove of Del Mark Asset Management and Kyle Bass of Hayman Advisors among some of the other bullish investors. General Motors is actually the most popular stocks among hedge funds.
Fourth on the list is Cigna Corp. (NYSE:CI), of which he owns 4.2 million shares valued at $368.4 million. Greenlight is the third largest shareholder of the health insurer among the hedge funds we track, after Jonathan Kolatch of Redwood Capital Management and Steven Richman of East Side Capital.
The last large cap stock in Einhorn’s top five list is Aetna (AET), another health insurance company. The stock returned more than 9% this year. John Paulson is the most bullish billionaire with a $500+ Aetna million position. One of last year’s top performing hedge fund managers Larry Robbins also initiated a brand new position in this stock during the fourth quarter.
General Motors, Cigna, and Apple had negative returns this year. The average return of these five stocks were also slightly negative since the end of 2013. The strategy may or may not work in the short-term but as a general rule we don’t think it is a good idea to imitate Einhorn’s large-cap picks.