David Einhorn’s hedge fund Greenlight Capital returned 8.2% in the first quarter.
In a letter to investors, Greenlight said gold was the “biggest winner so far” in its portfolio.
The firm warned that the bear market in stocks has only just begun.
Last quarter, one billionaire investor got lucky by investing in it.
David Einhorn’s Greenlight Capital gained 8.2% in the first quarter, easily outperforming the S&P 500’s more than 4% drop. In a letter to clients seen by Business Insider, the firm said gold was the “biggest winner so far” in its portfolio, up 19%.
Greenlight said it also outperformed its hedge fund benchmark with its holdings of gold bars and call options. The fund lost an average of 0.4% in the first quarter, according to research firm HFR.
The firm said inflation swaps were another catalyst for its outperformance. Between inflation swaps and gold, which is considered an inflation hedge, expectations of rising consumer prices are a theme in Greenlight’s portfolio. Forecasts of rising inflation have been a common feature of the Trump presidency since the global trade war began.
“We believe that nearly all of the current administration’s policy paths will lead to higher inflation,” the firm wrote.
Another highlight of Greenlight’s letter is its assertion that the U.S. stock market is in the early stages of a bear market. The firm was able to pinpoint exactly when it decided to abandon investing in stocks.
“Sensing that the market was turning, we moved from conservative (but not bearish) to bearish in late February,” the letter reads.
Stick to the safe zone
In anticipating a bear market, Greenlight reduced its net equity exposure to insulate itself from sharp declines and counter-trend rallies.
“Bear markets don’t fall in a straight line. They are punctuated by ‘snap-up’ rallies based on big headlines, extreme investor sentiment, and the experience that buying the dip generally pays off,” the letter reads.
Here’s a rundown of some of the other trades Greenlight mentioned in its first-quarter letter:
Short positions in companies “appealing to liberal tastes”: Greenlight expects Democratic consumers to pull back given their disproportionate reaction to recent federal government layoffs.
Long positions in SOFR futures: These investments would profit if the Fed cuts rates faster than the market expects, which is what Greenlight expects.
Dollar “tail protection”: Greenlight has added this position to protect against a sharp decline in the dollar against the euro and yen. That has already occurred.
Long inflation swaps: As mentioned above, the firm predicts that most of the Trump administration’s policies will lead to higher inflation over the long term.
