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How Did Billionaire David Einhorn’s Top Bets Perform in Q4?

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Since its launch in 1996, billionaire David Einhorn‘s Greenlight Capital has consistently been one of the best performing long/short equity hedge funds on the Street. In the period between 1996 and July 2013, the fund generated average annual returns of 19.5% for its shareholders at a market beta of only 0.5. Another metric that makes the fund’s performance even more impressive is that it does not use leverage to boost its returns. Greenlight Capital is famous on the Street for not generating large trading volumes. However, the third quarter of 2015 was a little different for the fund in that regard.

According to the firm’s third-quarter 13F filing, its equity portfolio saw a 35.71% quarter-over-quarter turnover between July and September. The filing also revealed that during the third quarter the value of the fund’s equity portfolio dropped by almost 25% to slightly above $6 billion and its top 10 holdings accounted for a lion’s share (64.08%) of the value of its equity portfolio at the end of September. Interestingly, even though Greenlight Capital became a little cautious during the third quarter, it increased its stake in all of its top eight equity holdings during that period. In this article we are going to analyze the performance of Greenlight’s Capital top five equity holdings during the final quarter of 2015.

David Einhorn
David Einhorn
Greenlight Capital

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about 6 basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas (see the details here).

#5 CONSOL Energy Inc. (NYSE:CNX)

– Shares Owned by Greenlight Capital (as of September 30): 29.6 million

– Value of Holding (as of September 30): $290.17 million

Although most energy stocks got beaten down heavily in 2015 due to the decline in crude and natural gas prices, CONSOL Energy Inc. (NYSE:CNX) turned out to be one of the worst performing stock in that sector.  Since May, shares of the company started falling heavily and ended 2015 down by 77% with almost 20% of those losses coming in the fourth quarter. However, Greenlight Capital increased its stake in the company by 33% during the third quarter. In its third-quarter letter to investors, Greenlight said that it is bullish on Consol because of its cost-cutting measures and solid drilling results, as well as “a significant success at a test well in the Utica Shale”.

“We believe the market has undue concern about the near-term prospects for Appalachian coal and natural gas, leading it to discount the company’s long-term resource value far beyond anything we anticipated,” Greenlight said.

On January 6, CONSOL Energy lowered its coal production guidance and capital spending plans for 2016 due to the continuing slump in commodity prices. It now expects to sell 27 million to 32 million tons of coals this year versus its previous guidance of 30.6 million to 33.4 million tons. Additionally, it now expects $205 million to $325 million in capital spending this year for its exploration and production division, significantly lower than its earlier guidance of $400 million to $500 million.

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