Odey Recovers In May But Assets Down $600M After Bloody April

After expressing his bearish outlook for the year in the last quarterly letter, we have more pessimism from Crispin Odey via his latest monthly letter. The Odey European fund grabbed a 5.2% return in the month of May after falling by a drastic 19.3% in April, according to a letter to investor reviewed by ValueWalk.

At the end of May, Odey Asset Management’s flagship strategy had a total loss of 13.9%. Odey’s poor performance has put it among the worst performing Hedge Funds of 2015, according to HSBC Holdings plc (ADR) (NYSE:HSBC) (LON:HSBA) Hedge Weekly’s latest update.The loss in April was Odey European’s largest intra-month decline since inception in 1992.

Odey

Odey’s massive bearish wager on equity and credit

Odey European Inc now manages $2.4 billion, down from $3 billion at the end of March, suffering a decline of over half a billion in assets due to bloody April (Note: The comparison of AuM is based on fund’s monthly letter to investors and data from HSBC Hedge Weekly). Its primary loss came from a short in Australian dollar against the U.S dollar in April. This led to the fund reducing its exposure in Forex from 500% of the NAV to 185% of the NAV at April’s end, which has now been further cut to 49.2% of the NAV in the May update.

The fund’s top holding is a short in Japanese 10-year bonds, which accounts for 30% of the fund’s notional exposure. The fund’s exposure in government bonds as a whole was increased to -15.9% in May. Among the fund’s top ten holdings, there is a greater number of shorts than long positions. Bearish bets in Las Vegas Sands Corp. (NYSE:LVS), Intu Properties, Ashmore Group, Swatch and Adidas are all among Odey European’s major holdings.

Greece and China could delay U.S. monetary policy change

In the monthly commentary, Crispin Odey mainly talked about the developments in Greece and darkly predicted that the troubled economy could be out of the EU by the time this letter was read. Odey said that what we are seeing in Greece and other struggling countries is the result of interference with natural market economies. He said that the U.S. has been attempting to disengage itself from the easy monetary policy but that it is not so easy now that the natural dynamics have been disturbed. Odey said chaos in Europe and poor growth in China could also deter the U.S. government from raising rates in September/October.

Odey’s best and worst performers in May

In equity, the fund’s best performer was a long in DMG Mori Co Ltd, a Japanese company that manufactures and sells machine tools. The share price movement in DMG Mori contributed a 79-basis-point gain to the Odey European fund. Holdings in Alcatel Lucent and LM Ericsson Telefon were also among the winners in May. Odey sustained losses in Tungsten Corp and Man Group PLC (OTCMKTS:MNGPF). Tungsten is a popular short in the U.K. Betting against Odey are Hutchin Hill Capital and Oxford Asset Management.

Among shorts, Swatch, Elekta and Anglo American moved in favor of Odey European. whereas bearish bets in  Lloyds Banking, The Coca-Cola Company (NYSE:KO), HBC, Ashmore Group and Berkley Holdings did not do well.