David Einhorn‘s Greenlight Capital had a tough 2015 with losses amounting to 20.2%, even though the annualized returns since its inception in 1996 still stood at 16.5%. The first quarter of this year started with the continuation of this downtrend, but the situation reversed half way through and Greenlight was in the green at the end of March returning 3%, net of fees and expenses, for the quarter. This warrants a look at the firm’s salient moves during the quarter involving large increases in holdings and new positions.
We track prominent investors and hedge funds 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 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).
#5 Yelp Inc (NYSE:YELP)
– Shares Owned by Greenight Capital (as of March 31): 3.23 Million
– Value of Holding (as of March 31): $64.29 Million
Greenlight hiked its stake in Yelp by eight times during the January-March period as it believed that the stock received a temporary setback due to missed earnings expectations and an upcoming negative documentary. Einhorn is positive about the changes that the Yelp Inc (NYSE:YELP) management is bringing about in the form of relocating salesforce to lower-cost cities and adding more transaction-based revenue, according to his recent letter to Greenlight investors. So far this year, shares are down by about 12.6%. Another fund that is upbeat about Yelp Inc (NYSE:YELP)’s future prospects is Eashwar Krishnan‘s Tybourne Capital Management, which held about 6.15 million shares of the search and review website at the end of March.
#4 American Capital Agency Corp. (NASDAQ:AGNC)
– Shares Owned by Greenight Capital (as of March 31): 4.80 Million
– Value of Holding (as of March 31): $89.42 Million
The American Capital Agency Corp. (NASDAQ:AGNC) holding was tripled by Greenlight during the first quarter and represented about 1.52% of its equity portfolio. The rationale behind the bet on the $6.36 billion REIT focused on single-family residential agency mortgage-backed securities was the stock depreciation owing to fears of potential Fed rate hikes. So far this year, the company’s stock price is up by more than 10% despite American Capital Agency falling $0.04 short of earnings expectations by posting EPS of $0.52 in its first quarter financial results. The REIT also sports a hefty dividend yield of 12.52%. Unlike Greenlight Dimitry Balyasny‘s Balyasny Asset Management cut its stake in American Capital Agency Corp. (NASDAQ:AGNC) by 20% during the first quarter to about 2.17 million shares.
#3 Hatteras Financial Corp. (NYSE:HTS)
– Shares Owned by Greenight Capital (as of March 31): 6.29 Million
– Value of Holding (as of March 31): $89.95 Million
Moving on to Greenlight’s next big bet on Mortgage REIT, which had the same motivation as the prior one, the fund’s newly initiated stake amassed about 6.5% of the company’s outstanding float. Hatteras Financial Corp. (NYSE:HTS) offers its investors a dividend yield of 10.85% and the stock has rallied by nearly 26% since the start of this year. Around mid-April the news of a definitive merger agreement between Annaly Capital Management and Hatteras surfaced the markets. The transaction also received a unanimous approval from the boards of both companies. Mangrove Partners, managed by Nathaniel August, boosted its stake in Hatteras Financial Corp. (NYSE:HTS) by 174% during the March quarter to 3.91 million shares.
Head on to the next page, where we will discuss Einhorn’s top two moves in the first quarter.