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John Hempton’s funds enjoy record March

jupiter
By Jasper Cox, Silas Brown
09 Apr 2020

Bronte Capital’s funds posted bumper gains in March. The hedge fund founded by the famous Australian short seller John Hempton benefitted from puts and shorts purchased before other investors panicked about the spread of coronavirus.

The Callisto fund posted a 5.6% gain, its highest since January 2018, according to a letter seen by GlobalCapital. And the Australian dollar-denominated Almathea fund posted an 11% gain for the month, its highest since its inception in May 2013.

In a letter to investors, seen by GlobalCapital, Bronte said: “In February we purchased some puts on selected stocks and indices to protect our clients against what we thought might happen with Covid-19.”

The letter goes on to say that the fund exploited the disconnect between what was written in the mainstream press versus what had been written in The Lancet and the New England Journal of Medicine.

“Many of our shorts were pummelled, faring much worse than the market, while most of our longs were not,” the hedge fund said.

Hempton, who is chief investment officer and co-owner, has gained notoriety as a short seller and appeared in the Netflix series Dirty Money. Bronte closed to new money with capacity close to A$750m in 2018, according to The Australian Financial Review.

Bronte did have regrets, however. “We were cowards who doubted our own judgment and it cost you outsized returns this month. We purchased enough cover to (approximately) protect the funds but not enough that outsized profits were likely.”

The Bronte team said making sizeable returns may be a struggle in the coming months. “Last month benefited from very cheap options purchased in February. We cannot replace that cheap insurance. Insurance is now alarmingly expensive and that makes it hard for us to make outsized returns if the market falls. It also limits the extent to which we are prepared to bet on a market rally.”

According to the letter, Hempton’s funds are cash-rich and less invested now than they have ever been.

Among individual stocks, Bronte said a position in Allied Irish Banks appeared “as an unmitigated disaster”.

“The bank remains well positioned (there is a strong oligopoly in Ireland), but a combination of Sinn Fein gaining political influence, coronavirus, a mortgage pricing scandal, the collapse in interest spreads, and general anti-bank sentiment has resulted in the stock losing over three quarters of its value over the last year. We have not bought more and are very unlikely to do so.”

Hempton bought shares in Visa and Symrise, a company that creates flavours and fragrances. A position in healthcare company Herbalife Nutrition performed badly.

“Herbalife gets much business with face-to-face community meetings. Obviously, the virus negatively affects business development. But Herbalife also sells weight loss food in long-life containers delivered via couriers. That part of the business should be doing very well,” the fund said.

Callisto is also the name given to Jupiter’s second largest moon. The Galileo spacecraft research on Callisto conducted in the 1990s indicated that the moon may have a salty ocean underneath its icy exterior.

It also shares its name, curiously, with an LLC tied to Elon Musk, Callisto 100.

Hempton has said he has a small short position against Tesla. In an interview in April 2019 with Real Vision Interview he said: “If the stock goes to zero I’ll have a drink at Elon’s expense and I’ll actually be sad for the world.”

By Jasper Cox, Silas Brown
09 Apr 2020