Greenlight’s Einhorn’s defensive strategy pays off

* Einhorn says held small net long position in 1st half

* Greenlight Capital still gains on gold exposure

* Firm hot on African Barrick Gold, Apple and Ensco

By Jennifer Ablan

NEW YORK, July 19 (BestGrowthStock) – Hedge fund manager David
Einhorn’s major bet on gold and a “conservative and defensive”
stance on equities paid off in the first half of the year,
helping his Greenlight Capital funds to outperform major stock
indexes.

Through the first half of the year, each of Einhorn’s
Greenlight Capital funds posted returns of 1.6 percent, 2.2
percent and 0.8 percent, respectively, according to his
quarterly letter, a copy of which was obtained by Reuters on
Monday. By comparison, the benchmark Standard & Poor’s 500
(.SPX: ) and Dow Jones industrials average (.DJI: ) each lost at
least 6 percent in the period.

Einhorn, whose Greenlight Capital had $6.8 billion of
assets as of Jan. 1, 2010, did not specify the percentage of
funds invested in equities in the first half.

“We have maintained a conservative and defensive portfolio,
with a small net long position throughout and have almost
entirely avoided the volatility of the schizophrenic market,”
he said in his investment report to clients.

Einhorn said Greenlight “succeeded but only modestly” in
playing both long and short positions in the portfolios. “Our
longs declined less than the market and our shorts declined
more than the market,” he said.

In a short sale, investors sell borrowed shares on bets the
stock price will fall. The goal is to buy the shares back at a
lower price and realize a profit on the spread between the
original sale price and the cost of buying the shares back.

Einhorn, who was among the first to publicly warn about
Lehman Brothers’ precarious finances, said his macro position
on gold continued to deliver good results. The precious metal
appreciated from $1,113 to $1,244 per ounce during the second
quarter.

Last fall, Einhorn said the exploding size of the U.S.
national deficit, which reflected government policies that
rewarded bad behavior with massive bailouts, would make gold
and gold stocks good investments.

GOOD MOOD ON MOODY’S

The other significant winner for Greenlight Capital was a
short position on Moody’s Investors Service (MCO.N: ). In the
second quarter, shares in the rating agency fell from $29.75 to
$19.92 per share.

“The proposed financial reform bill raises the rating
agency legal liability more than the bulls expected,” Einhorn
said. The U.S. Senate last Thursday passed the sweeping
financial regulatory reform bill, sending it to President
Barack Obama to be signed into law.

Einhorn added the Financial Crisis Inquiry Commission held
hearings where former Moody’s employees alleged that the
company had, in fact, compromised ratings quality for market
share. “We believe that an eventual, but likely, legal loss
will have a significant negative impact on MCO shares.”

Conversely, Einhorn’s biggest loser during the second
quarter was Pfizer Inc. (PFE.N: ), which fell from $17.15 to
$14.26 per share. He noted that though the company announced
strong first-quarter earnings results, a weaker euro caused
analysts to reduce 2010 consensus estimates from $2.25 to $2.15
per share.

Greenlight either took on new positions or added to stakes
in African Barrick Gold (ABGL.L: ), Apple Inc (Read more about Apple stock future.). (AAPL.O: ), Ensco
Plc (ESV.N: ) and NCR Corporation (NCR.N: ) last quarter.

On Apple, Einhorn wrote: “The opportunity to invest in this
leading company (with a better financial profile than market
participants seem to acknowledge) appears iTtractive at its
current multiple.” Apple shares ended the second quarter at
$251.53 each and on Monday afternoon were trading at $241.91.

Stock Market Money

(Editing by Leslie Adler)

Greenlight’s Einhorn’s defensive strategy pays off