In Q3 of this year, the big change in Greenlight’s portfolio was a 90% increase in shares held Computer Sciences Corp (CSC) which bumped it up to a top 10 holding. The shares in Sprint (S) and Coventry Healthcare (CVH) were substantially reduced taking them out of the top 10:
Greenlight’s top 10 positions have been relatively stable over time which is why large changes warrant a closer look:
Computer Sciences Corp is “an IT and professional services provider that caters to governments and commercial enterprises”. CSC just agreed to sell its credit services unit to Equifax Inc. for $1Bn in cash.
After initiating a small position in CSC at the beginning of this year (only $71M), Einhorn doubled down in Q3 just as the stock rallied. Depending on Einhorn’s timing, this trade could meaningfully contribute to P&L this year:
Greenlight currently holds just over 4% of the shares outstanding (making it one of the largest shareholders). Also on that list….Larry Robbin’s Glenview Capital Management with 2.88% of shares outstanding:
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Greenlight Capital is run by well-known value investor David Einhorn (and author of “Fooling all of the People some of the Time). The firm began in 1996 with $900k under management and has grown to over $4 billion dollars compounding at over 22% annually. Einhorn was in the news last year for publicly announcing at the Value Investing Conference that he was massively shorting Green Mountain Coffee Roasters (GMCR) at $80 a share (right before its collapse).
In Q2, Einhorn made 2 notable additions to his top 10 positions: Cigna Corp (CI) and Coventry Health Care (CVH). Dell Computer (DELL) which was previously a top position was entirely removed:
Einhorn started a meaningful position in Cigna Corp in Q2 after the stock had run up to 52 week highs (and sideways trading all year).
Coventry Healthcare was another notable addition in Q2 and his timing was perfect ahead of the $5.7BN bid from Aetna:
Greenlight Capital is run by well-known value investor David Einhorn (and author of “Fooling all of the People some of the Time). The firm began in 1996 with $900k under management and has grown to over $4 billion dollars compounding at over 22% annually. Einhorn has most recently been in the news for publicly announcing at last year’s Value Investing Conference that he was massively shorting Green Mountain Coffee Roasters (GMCR) at $80 a share. On November 9, 2011, the Q3 reports had missed analyst expectations by a small margin and its stock price plunged over 35% to $44.10 in the aftermarkets.
In Q4 2011, there were relatively fewer changes to the top 5 names except for GM increasing by 29%. Likewise in Q1 2012, there was very little change in the top positions other than decreasing MSFT by 7.5M shares. Apple (AAPL) is still the largest position and Einhorn argues in his most recent investor letter that “we believe shares are still cheap” (see below for letter).
There were only 3 names introduced into the portfolio in Q1 but all at 1% positions (or less):
Several smaller positions were dropped from the portfolio in Q1:
Read more below:
What would an equal-weighted portfolio of David Einhorn’s top 10 stocks would’ve looked like over the last 3 years?
Despite losing money in 2011, bear in mind that the various L/S Equity HF indices were down between 5 and 6% in 2011 so relatively, that’s not too bad especially for a portfolio of liquid equities that turns over only 4x a year.
When creating replicated portfolios for clients we always advocate against cloning the top positions of just 1 filer (for a variety of reasons). But replicating the top positions of a handful of well-chosen filers (many of which are not even hedge funds) is a very robust way to construct a low-turnover, highly liquid portfolio of outperforming stocks over time.
Contact firstname.lastname@example.org for more information about hedge fund replication services.
See Greenlight’s Q4 2011 letter to investors:
Download (PDF, 170.13KB)