David Einhorn signals caution as his hedge fund Greenlight prioritizes capital protection

Hedge fund supervisor David Einhorn mentioned he’s specializing in capital safety as markets rally on geopolitical optimism, warning that traders could also be underestimating potential draw back dangers.

“It in all probability will not shock anybody that we’re once more placing capital preservation on the prime of our priorities,” Einhorn mentioned in his newest investor letter dated Monday and obtained by CNBC. “With so little draw back priced in, we’re prepared to danger lacking out on a attainable restoration to place ourselves to play extra offense, ought to one of many draw back eventualities materialize.”

U.S. shares have rebounded violently with the S&P 500 completely erasing the losses suffered because the Iran conflict started. The market is constructing on the current positive factors this week even after U.S.-Iran negotiations over the weekend broke down, as traders remained optimistic {that a} deal between the 2 nations was nonetheless attainable.

Greenlight’s funds returned 6.5% within the first quarter, outperforming the S&P 500’s 4.4% decline. Nonetheless, Einhorn mentioned the agency has saved comparatively low gross and web publicity, reflecting warning about valuations and the broader macro backdrop.

“Even probably the most cautious are investing with a Sammy Hagar impressed mentality: one foot on the brake and one on the gasoline,” he mentioned within the letter. “No one needs to overlook the V- and even the checkmark-shaped restoration.”

Because the battle started, Greenlight was already working with comparatively low publicity, citing what it seen as stretched valuations. Einhorn mentioned Greenlight has made few changes, buying and selling round index hedges and including a protracted place in October oil futures. That wager has risen solely modestly, as markets largely anticipate any provide disruption to be momentary.

Efficiency within the quarter was pushed by positive factors in gold, Acadia Healthcare, DHT Holdings and Core Pure Assets, in response to the letter. Greenlight additionally initiated a medium-sized place in Versant Media Group and smaller stakes in Crocs and SLM Corp.

Disclosure: Versant Media is the mum or dad firm of CNBC.