David Einhorn's Greenlight Capital Inc closed the firm's money-losing short position in Chipotle Mexican Grill Inc, the $10 billion hedge fund said in a letter to clients on Tuesday, and the firm has started shorting a group of momentum stocks that he did not identify.
"There is a clear consensus that we are witnessing our second tech bubble in 15 years," Greenlight said. "In our view, the current bubble is an echo of the previous tech bubble, but with fewer larger capitalization stocks and much less public enthusiasm."
Losses in technology and biotech stocks have hurt a slew of hedge funds in March and April, with the Nasdaq Composite Index dropping more than 4 percent since March 5 when it reached the highest level in almost 14 years.
Greenlight, overall, was down on the quarter, with a negative 1.5 percent return, as its short positions did worse than the long positions. Greenlight admitted that the firm's ongoing short position in Keurig Green Mountain Inc "was our only significant loser," as the stock jumped more than $30 in the time period.
Investors such as Einhorn take short positions in markets by borrowing shares and selling them, buying them back later at a lower price to make a profit. The Chipotle position handed Greenlight a 33 percent loss, with the letter saying: "This short gave us gas."
As for its short position in momentum stocks, Greenlight dubbed them "The Bubble Basket" and added that the firm had limited its short bets against certain momentum stocks because such bets can be "dangerous" when stock prices become disconnected from companies' fundamentals. "What is uncertain is how much further the bubble can expand, and what might pop it," the letter said.
Greenlight also closed short positions in Michael Kors Holdings Ltd, Australia's Fortescue Metals Group Ltd and Canada's Loblaw Companies Ltd with losses, while selling profitable long positions in General Motors Co, Delphi Automotive Plc, NCR Corp and DST Systems Inc in the same period.
Greenlight said the firm took new stakes in retailer Conn's Inc and SunEdison Inc. Shares in Conn's rose 7.65 percent on the day while SunEdison jumped 11.88 percent following the Greenlight recommendations.
Conn's is a regional U.S. retailer of appliances and electronics with double-digit comparable store sales growth. Its share price fell from $79 at the start of the year to $32 after it cut its profit forecast due to bad debts. Greenlight acquired shares at an average price of $35.49 and ended the first quarter at $38.85.
As for SunEdison, a developer of solar power plants for businesses and utilities, Greenlight said the company was positioned as a winner due to the declining cost of solar energy combined with the rising cost of conventionally produced electricity. "The company has built a large pipeline of attractive projects secured by credit-worthy buyers of electricity," he said.
Greenlight acquired shares at an average price of $15.55 and ended the first quarter at $18.84.
(Reporting by Jennifer Ablan in New York; Editing by Chizu Nomiyama and Lisa Shumaker)