Crispin Odey Remains Bearish On Equities, Which Says A Lot About These 5 Stocks He Likes

Odey Asset Management Group‘s Crispin Odey is among the few fund managers who started 2015 on a bearish note. In a presentation he sent to investors earlier in the year, Mr. Odey explained why he was increasingly becoming bearish on the equity and bond markets, something which he has reiterated in every piece of communication that he has sent to his shareholders ever since. Although the first half of the year didn’t pan out as Mr. Odey would have expected and several funds managed by Odey Asset Management slumped heavily during that period, the second half of the year seems to be going in his favor. During August, when volatility gripped the markets and several asset management firms witnessed large drawdowns, a large number of funds managed by Odey Asset Management, especially those with high exposure to currencies, began regaining lost ground.

We at Insider Monkey recently laid our hands on the latest monthly newsletter sent to investors of Odey OEI MAC Fund, in which Mr. Odey again reiterated his bearish outlook. In the letter, he argues that quantitative easing (QE) executed by central banks in the past few years has resulted in asset prices getting bloated and valuations of Developed Market (DM) equities being “so extended that they will need to fall 30-40% to be compelling in terms of carry.” Even though a large part of capital managed by Odey Asset Management is currently invested in currencies and the fund has been continuously reducing its exposure to equities in the last few quarters, there are a few U.S listed stocks that it continues to hold in its portfolio. Considering the fact that Mr. Odey holds these stocks even when he is bearish on the equity markets overall, it is quite possible that these stocks might outperform the overall markets in the short to medium-term. That’s why in this article we will take a closer look at Odey Asset Management’s five largest U.S equity holdings at the end of the second quarter.

Why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 60 percentage points over the 36 month period beginning from the start of September 2012, returning 118% (read the details here).

Having increased its stake in Goldman Sachs Group Inc (NYSE:GS) by 11% to 946,517 shares, the investment banking firm continued to remain Odey Asset Management’s largest U.S equity holding at the end of the second quarter. However, with an almost 17% decline in its stock during the third quarter, it remains to be seen if it can still command that position. After Lloyd C. Blankfein, the current CEO and Chairman of Goldman Sachs Group Inc (NYSE:GS) announced last month that he is suffering from a curable form of lymphoma, speculation regarding his second-in-command, Gary D. Cohn, replacing him soon have started making the rounds. Investing legend Warren Buffett‘s Berkshire Hathaway continued to remain the largest shareholder of Goldman Sachs Group Inc (NYSE:GS) at the end of the second quarter among the hedge funds we track, owning over 12.6 million shares.

Odey Asset Management initiated a stake in Wells Fargo & Co (NYSE:WFC) during the second quarter by purchasing almost 3.28 million shares valued at $184.37 million as of June 30. Although the stock of Wells Fargo & Co (NYSE:WFC) has also receded quite a bit during the third quarter, the magnitude of that decline isn’t as large as what shares of Goldman Sachs experienced during the same period. Analysts on the Street have praised the company’s recent move to acquire the GE Railcar Services from GE Capital, which was announced on September 30. Just like Goldman, Berkshire Hathaway was also the largest shareholder of Wells Fargo & Co (NYSE:WFC) at the end of the second quarter among the hedge funds covered by us, owning 470.3 million shares.

Moving on, after reducing its stake in D.R. Horton, Inc. (NYSE:DHI) by 67% during the first quarter, Odey Asset Management again reduced its stake in the company during the second quarter, by 17% to 4.38 million shares, which were worth around $120 million at the end of June. During August, when most stocks saw significant declines, shares of D.R. Horton, Inc.(NYSE:DHI) bucked the trend and currently trade with a year-to-date gain of over 22%. Deutsche Bank analyst Nishu Sood, who downgraded the stock on September 21 to a ‘Hold’ from ‘Buy’ while keeping his price target on it constant at $32, commented in his note to clients that large-cap builders like D.R. Horton have appreciated quite a bit and “need time to grow into their valuations.” Will Snellings‘ Marianas Fund Management initiated a stake in the company during the second quarter by buying over 1.17 million shares.

Owing to the greater than 15% rise in its stock during the second quarter, Amazon.com, Inc. (NASDAQ:AMZN) continued to remain Odey Asset Management’s fourth-largest equity holding at the end of the second quarter, even though the fund reduced its stake in the company by 17% to slightly above 200,000 shares during that period. With a year-to-date appreciation of almost 75%, it would be an understatement to say that Amazon.com, Inc. (NASDAQ:AMZN)’s stock has performed well for the year. The company announced today that it will be offering a new analytics service on its Amazon Web Services (AWS) platform beginning this week. Boykin Curry‘s Eagle Capital Management was another hedge fund that reduced its stake in Amazon.com, Inc. (NASDAQ:AMZN), by 6% to almost 2.01 million shares, during the second quarter.

Fertilizer producer CF Industries Holdings, Inc. (NYSE:CF) jumped two places in Odey Asset Management’s U.S equity portfolio during the April-to-June period, thanks to the firm nearly quadrupling its stake in the company to 1.31 million shares during that time. Although shares of CF Industries Holdings, Inc. (NYSE:CF) remained largely flat during the first seven months of the year, the downward journey they started beginning in June has caused them to lose more than 10% year-to-date. On October 2, analysts at Citigroup reduced their price target on the stock to $57 from $75, while nonetheless maintaining their ‘Buy’ rating on it. In a recently-submitted 13G filing, billionaire David E. Shaw‘s firm D.E. Shaw revealed that it has increased its stake in CF Industries Holdings, Inc. (NYSE:CF) by 81.3% to around 12.32 million shares.

Disclosure: None