With its main fund plummeting by 20.4%, there is no doubt that 2015 was a terrible year for billionaire David Einhorn‘s Greenlight Capital. However, if one considers the fund’s past performance, Greenlight still ranks as one of the best performing hedge funds in the industry despite the disappointing year. According to the fund’s fourth quarter letter to its investors, it has generated annualized returns of 16.5% net of fees and expenses since its inception in 1996. A testament to Mr. Einhorn’s ability to generate superior returns and the faith that his investors have in him is the low level of redemptions Greenlight saw in 2015 despite performing poorly. Analysis done by Bloomberg shows that Greenlight’s assets under management (AUM) fell to $8.6 billion from $11.8 billion during the year, largely due to performance, as investors’ withdrawals were limited to around 5% of AUM. Considering the fund’s past performance, we think that Greenlight will soon recover from this rough patch, so in this article we will delve into the fund’s top five long-term picks that will likely carry it back to glory.
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 Oil States International, Inc. (NYSE:OIS)
– Shares Owned by Greenlight Capital (as of December 31): 887,428
– Value of Holding (as of December 31): $24.18 million
Greenlight Capital initiated its stake in Oil States International, Inc. (NYSE:OIS) during the first quarter of 2013, but reduced it significantly in 2014 amid a sharp decline in the company’s stock. Once Oil States International, Inc. (NYSE:OIS)’s stock started showing some stability in the fourth quarter of 2015, the fund again solidified its stake by purchasing an additional 622,400 shares of the company. Billionaire Israel Englander‘s Millennium Management was another hedge fund which boosted its holding in Oil States International during the fourth quarter, increased it by 117% to 2.22 million shares. Due to the recent move up in crude oil prices, shares of Oil States have appreciated by 26% in the past month and currently boast year-to-date gains of over 15%. However, a lot of analysts who cover the stock think that it is overvalued at current levels, believing that at an EBITDA multiple of 5-times it should ideally be trading around $15 per share, which represents potential downside of over 50% from its current price.
#4 Vodafone Group Plc (ADR) (NASDAQ:VOD)
– Shares Owned by Greenlight Capital (as of December 31): 889,294
– Value of Holding (as of December 31): $28.7 million
Vodafone Group Plc (ADR) (NASDAQ:VOD) became a part of Greenlight Capital’s portfolio in the fourth quarter of 2012. Though the company’s stock hasn’t appreciated much since Greenlight took a stake in the company, Vodafone Group Plc (ADR) (NASDAQ:VOD) has paid considerable dividends during that period. The company currently pays a quarterly dividend of $0.53 per share, which translates into an attractive annual dividend yield of over 7% at present. In February, the company issued convertible bonds in two tranches to raise $4.17 billion, which it plans to use for ‘general corporate purposes’. On March 15, Vodafone Group announced that it has set up a global business unit targeting digital security for its enterprise customers. Ken Griffin‘s Citadel Investment Group initiated a stake in Vodafone Group Plc (ADR) (NASDAQ:VOD) during the fourth quarter by, purchasing 523,587 shares of the company.
Three more long-term holdings of David Einhorn are discussed on the next page.