REFILE-UPDATE 2-Einhorn sticks with what he likes after lackluster year

Wed Jan 23, 2013 10:37pm EST

By Svea Herbst-Bayliss

Jan 23 (Reuters) - Hedge fund manager David Einhorn, whose moves are closely watched in the markets, told investors this week he is sticking with some of the names he has long liked even though they hurt his fund's performance last year.

Einhorn loaded up on Marvell Technology Group, which had been last year's biggest loser, and he jumped in to buy Apple after the technology company's stock price had cratered. Einhorn also said he is sticking with his negative outlook on Japan, where his bearish bet finally began to pay off late last year.

Einhorn also told investors that he shorted nutritional supplements company Herbalife Ltd last year but has no position in the company now, a person familiar with his presentation to clients said.

The battle around Herbalife has captivated Wall Street ever since William Ackman publicly announced his $1 billion short position, sending the shares tumbling in late December. Ackman is now effectively facing off against fund manager Daniel Loeb, who put on his long Herbalife position after the Ackman presentation when the shares were inexpensive. Loeb has told his clients that he sees the stock price running higher. People familiar with Kynikos Associates said that its manager Jim Chanos was probably short Herbalife last year as well.

While much looks the same in Einhorn's $8 billion Greenlight Capital portfolio, the manager also initiated new positions. He is betting against the future of some iron ore companies, arguing that supply is now outstripping demand. Einhorn did not name the companies he is shorting, sticking with tradition where most short sellers stay mum about exactly what they are doing.

Looking back on 2012 when his fund earned roughly 8 percent, Einhorn said performance was not a catastrophe but fell short of his goals. Einhorn blamed results on the fourth quarter when the fund lost nearly 5 percent, cutting "our year from good to pedestrian."

With his typical wry humor, Einhorn told clients in his five-page investment letter "Our coffee was too hot, our apple was bruised, and our iron ore supplements didn't go down smoothly."

He was referring to coffee roaster Green Mountain Coffee Roasters, which Einhorn had expected to fall. But when the stock price rose late in the year, it wiped out all the profits he had accumulated through those trades.

Similarly, Apple gave back all of its third quarter gains, Einhorn said, when the stock price tumbled to $532.17 from $667.10. But he said he used the low stock price to repurchase the shares he sold in the third quarter.

In Marvell, Einhorn said disappointing earnings early in 2012, followed by a $1 billion award in a patent infringement suit, hurt the company. But this year, the outlook is better.

"We expect the shares to sprint higher in 2013," Einhorn wrote about the semiconductor company, noting that the patent infringement award will be significantly reduced or eliminated altogether.

"Though we would love to admit we are wrong, sell the stock and move on, we continue to like the opportunity here," he wrote, adding that Marvell is on the cusp of a "large product transition," which has not been fully valued.

Einhorn also added to his position in Vodafone after the stock fell on news that he says "just didn't seem that bad." Vodafone owns 45 percent of Verizon Wireless and the head of U.S. telecommunications giant Verizon Communications has said that it may buy Vodafone, a move Einhorn appears to endorse. "Maybe there is an investment banker with time on his hands reading this letter," Einhorn wrote.

Turning to General Motors, a stock Einhorn said he liked at an industry conference in October, the manager praised the car maker for its share repurchases but said it still has more capital on hand to reward investors with more buy backs either from the government or in the open market.

Einhorn, like many other investors, has been pessimistic about Japan's prospects, and said those bearish views have finally begun to pay off. He said the yen has started to weaken in the wake of a change in leadership in Japan and suspects the currency will fall more. "We suspect there is more to come, possibly a lot more to come. We remain bearish." The falling yen helped offset what Einhorn said where the fund's lumps on gold.

Einhorn has long been a favorite with big investors thanks largely to his outstanding long-term record where he has earned an average annual rate of return of 19.4 percent since his wife gave him the go-ahead to launch the fund in 1996.

In reviewing the year, Einhorn said long positions, including his bet on Apple which soured only at the end of the year, fueled performance. He said he lost money on the short side of the portfolio.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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