Hedge fund manager David Einhorn said a shift in favor of value stocks may soon be coming even after his firm posted its worst underperformance in almost two decades.
“While we’ve never underperformed like this, our prior worst underperformance compared to the S&P came in March of 2000, which was a similar environment,” Einhorn said Wednesday in a conference call discussing results for Greenlight Capital Re Ltd., the Cayman Islands-based reinsurer where he is chairman.
“While the environment has remained difficult with growth stocks accelerating their outperformance against value stocks this year including February, we think a reversion may finally be coming soon,” the value investor added.
Poor investment returns and underwriting results have put pressure on the reinsurer’s shares, which have tumbled 16 percent this year. Greenlight fell 4 percent at 9:58 a.m. Wednesday in New York after it reported a loss per share of $1.02 for the fourth quarter, wider than the two analyst estimates of 54 cents, according to Bloomberg data. The company had a net investment loss of $16.2 million in the quarter.
Einhorn said the management team has “started to revamp every area of our business” and that those efforts will take time to pay off. Greenlight Re is repositioning its insurance portfolio and the company has entered into several new classes of specialty businesses, including marine, energy and space, Chief Executive Officer Simon Burton said on the call.
The hedge fund manager is banking on a reversion to value stocks after a 5.5 percent drop in the reinsurer’s investment portfolio in January. Stocks in its long book rose by about half of the S&P 500 Index’s gain during the month, while the equities Greenlight was betting against increased by more than twice the index, he said. Einhorn has been shorting a “bubble basket” of growth stocks, including including Amazon.com Inc. and Netflix Inc.
This month’s performance hasn’t been as bad. “It has not underperformed materially but it has not outperformed either,” Einhorn said.
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