Crispin Odey Returns To Merger Arbitrage and Gold As Struggles Persist

Famous for managing a 55% return by betting against European banks’ stocks at the height of the 2008 credit crunch, Crispin Odey currently manages roughly $9.3 billion worth of assets through his fund Odey Asset Management, which he founded in 1991. Although the OEI MAC fund started 2016 on the right foot, managing to produce a 14% gain during the first few weeks of the year, things soon turned sour as the fund’s positions dipped into the red. It went from bad to worse during the second quarter, as the fund is currently down by roughly 30% year-to-date, having dropped by 4.1% in July alone. Currency bets and short exposure were the main drivers behind the fall, while bullish bets on gold and other commodities have helped to offset some of the downfall.

On the equity front, Crispin Odey was looking to shake things up by adding 21 new positions to his portfolio during the second quarter, five of which moved right into his portfolio’s top-10 most valuable holdings. Approximately 37% of the value of Odey’s portfolio is represented by tech stocks, while consumer discretionary stocks amount to 15%. The overall value of the firm’s U.S. equity portfolio was $1.12 billion at the end of June. In this article we’ll have a look at those five new bets of the firm during the second quarter.

At Insider Monkey, we track around 765 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

Betting On Lexmark Deal To Close

We’ll start things off with Lexmark International Inc (NYSE:LXK), the manufacturer of printing devices. Over the course of the second quarter, Odey Asset Management acquired some 1.71 million shares worth $64.5 million at the end of June. Lexmark International Inc (NYSE:LXK) is the subject of a takeover attempt by a consortium of investors led by Apex Technology in a deal worth $2.54 billion. Shareholders have recently approved the offer and stand to receive $40.50 per share in cash. The deal is subject to regulatory approval and is expected to close by the end of the year. Currently trading at $34.80 per share, the stock is still a long way off from the acquisition offer, which could indicate that investors expect complications to arise when the deal is analyzed by regulators. Robert Emil Zoellner is also betting on the deal going through, as his fund Alpine Associates acquired 1.01 million shares of Lexmark International Inc (NYSE:LXK) during the second quarter.

Healthcare Merger Mania

Next up is Humana Inc (NYSE:HUM), a stock which the fund amassed 374,043 shares of during the quarter, valued at $67.3 million on June 30. In July 2015, news emerged that Humana was to be acquired by its larger rival Aetna Inc (NYSE:AET) for $34 billion in a cash-and-stock deal. U.S. regulators, however, are opposing the deal, arguing that the merger would lead to higher prices for consumers. They argue that Aetna’s Medicare Advantage does not compete with the government’s Medicare plans, an issue that will be disputed in a trial to start on December 5. Aetna has threatened to exit the Obamacare individual insurance market should the deal be blocked, as it is dependent on the synergies created by the merger to recuperate the investment it made in those government-subsidized insurance plans. In the most recent quarter, Humana Inc (NYSE:HUM)’s profits suffered as the company was forced to set aside more money to cover for the losses stemming from its Obamacare business. While revenue rose by 2% during the second quarter to $14.01 billion, net profit fell by 28% to $311 million or $2.30 per share when adjusting for one-time items.

Turn the page to find out more about Odey’s three largest purchases during the quarter.