Crispin Odey Returns To Merger Arbitrage and Gold As Struggles Persist

Famous for managing a 55% return by betting against European banks’ stocks at the height of the 2008 credit crunch, Crispin Odey currently manages roughly $9.3 billion worth of assets through his fund Odey Asset Management, which he founded in 1991. Although the OEI MAC fund started 2016 on the right foot, managing to produce a 14% gain during the first few weeks of the year, things soon turned sour as the fund’s positions dipped into the red. It went from bad to worse during the second quarter, as the fund is currently down by roughly 30% year-to-date, having dropped by 4.1% in July alone. Currency bets and short exposure were the main drivers behind the fall, while bullish bets on gold and other commodities have helped to offset some of the downfall.

On the equity front, Crispin Odey was looking to shake things up by adding 21 new positions to his portfolio during the second quarter, five of which moved right into his portfolio’s top-10 most valuable holdings. Approximately 37% of the value of Odey’s portfolio is represented by tech stocks, while consumer discretionary stocks amount to 15%. The overall value of the firm’s U.S. equity portfolio was $1.12 billion at the end of June. In this article we’ll have a look at those five new bets of the firm during the second quarter.

At Insider Monkey, we track around 765 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

Crispin Odey

Betting On Lexmark Deal To Close

We’ll start things off with Lexmark International Inc (NYSE:LXK), the manufacturer of printing devices. Over the course of the second quarter, Odey Asset Management acquired some 1.71 million shares worth $64.5 million at the end of June. Lexmark International Inc (NYSE:LXK) is the subject of a takeover attempt by a consortium of investors led by Apex Technology in a deal worth $2.54 billion. Shareholders have recently approved the offer and stand to receive $40.50 per share in cash. The deal is subject to regulatory approval and is expected to close by the end of the year. Currently trading at $34.80 per share, the stock is still a long way off from the acquisition offer, which could indicate that investors expect complications to arise when the deal is analyzed by regulators. Robert Emil Zoellner is also betting on the deal going through, as his fund Alpine Associates acquired 1.01 million shares of Lexmark International Inc (NYSE:LXK) during the second quarter.

Follow Lexmark International Inc (NYSE:LXK)
Trade NYSE:LXK Now!

Healthcare Merger Mania

Next up is Humana Inc (NYSE:HUM), a stock which the fund amassed 374,043 shares of during the quarter, valued at $67.3 million on June 30. In July 2015, news emerged that Humana was to be acquired by its larger rival Aetna Inc (NYSE:AET) for $34 billion in a cash-and-stock deal. U.S. regulators, however, are opposing the deal, arguing that the merger would lead to higher prices for consumers. They argue that Aetna’s Medicare Advantage does not compete with the government’s Medicare plans, an issue that will be disputed in a trial to start on December 5. Aetna has threatened to exit the Obamacare individual insurance market should the deal be blocked, as it is dependent on the synergies created by the merger to recuperate the investment it made in those government-subsidized insurance plans. In the most recent quarter, Humana Inc (NYSE:HUM)’s profits suffered as the company was forced to set aside more money to cover for the losses stemming from its Obamacare business. While revenue rose by 2% during the second quarter to $14.01 billion, net profit fell by 28% to $311 million or $2.30 per share when adjusting for one-time items.

Follow Humana Inc (NYSE:HUM)
Trade NYSE:HUM Now!

Turn the page to find out more about Odey’s three largest purchases during the quarter.

Yet Another Merger bet

Crispin Odey is also betting on Ingram Micro Inc. (NYSE:IM) being taken over, as his fund bought 1.96 million shares of the tech company. A provider of technology and supply chain services, Ingram Micro has agreed to a $6 billion takeover by Chinese conglomerate HNA Group. The deal was put on hold, though, after the Shanghai Stock Exchange initiated an in-depth review of the deal, after questions were raised regarding the compatibility of Ingram Micro Inc. (NYSE:IM) and HNA subsidiary Tianjin Tianhai, as well as some of the financial aspects of the deal. Both companies, however, are determined to go through with the merger and expect to close the deal during the second half of the year. While the Chinese conglomerate agreed to pay $38.90 for each share, Ingram Micro’s stock fell as low as $33.43 in May and is still offering a good arbitrage opportunity at the current price of $34.56 per share. Alec Litowitz and Ross Laser‘s Magnetar Capital also stands to gain if the deal is approved, as it held a little over 3.18 million shares of Ingram Micro Inc. (NYSE:IM) at the end of June.

Follow Ingram Micro Inc (NYSE:IM)
Trade NYSE:IM Now!

Still Bullish On Gold

Despite some signs of exhaustion for the demand for gold and silver, Mr. Odey has decided to bet on Kinross Gold Corporation (USA) (NYSE:KGC). At the end of the second quarter, his fund had amassed 15.5 million shares of the Canadian gold-mining company, a position valued at $75.7 million on June 30. In a recent letter to investors, Mr. Odey argues that sooner or later, investors will return to gold; “In a world where $13 trillion of bonds are negative yielding, where $4 trillion of investments are in ETF’s, is it wise that only $1.5 trillion of savings are invested to protect investors against a change in the weather?” reads the letter. So far this year, Kinross Gold Corporation (USA) (NYSE:KGC) has risen by 172%, but has been trading in a range since the end of April. Nevertheless, the stock is still not far from its all-time lows and the financial results in its most recent quarter surpassed analyst’s revenue expectations, so there could be plenty of room yet left to run for the stock. The company posted an adjusted loss of $0.01 per share on the back of $876.4 million in revenue for its latest quarter, up by 16% year-over-year. Analysts’ had projected $862 million in revenue and earnings of $0.01 per share.

Follow Kinross Gold Corp (NYSE:KGC)
Trade NYSE:KGC Now!

Big Bet On Entertainment

Whether times are good or bad, entertainment is always in demand. Amaya Inc. (NASDAQ:AYA), a provider of a wide range of gaming and interactive entertainment products, is Odey Asset Management’s new top dog, after the fund acquired approximately 9.98 million shares of the stock during the second quarter, worth an $152.9 million. Amaya Inc. (NASDAQ:AYA) has a market cap of $2.25 billion and does not pay a dividend. For the second quarter, the company posted a profit of $22.5 million or $0.46 per share when adjusted for non-recurring costs, topping analysts’ consensus estimate of $0.36 per share. Revenue came in at $285.9 million, also ahead of Wall Street’s expectations of $279.6 million. Shares are currently up by 25% this year, but are flat during the third quarter. Zach Schreiber‘s Point State Capital also holds a sizable stake in Amaya Inc. (NASDAQ:AYA), consisting of 8.06 million shares worth $123 million at the end of June.

Follow The Stars Group (NASDAQ:TSG)

Disclosure: None