Only a few trades were profitable in a year of the bruising war. However, Charles Lemonide nailed it with his energy sector portfolio even as the S&P 500 Index saw losses in most sectors.
The Chief Investment Officer at ValueWorks, a long-term investment management firm, rode on the gains in the energy sector, posting a handsome 40% return through November. His flagship fund was helped by short positions on some of the erstwhile high-profile tech stocks.
ValueWorks Limited Partners Fund, valued at $164 million, counts Valaris Ltd and Chord Energy Corp. among the top holdings in its portfolio. These companies gained this year after oil prices rallied post-Russia-Ukraine war and recovery of the economy from the pandemic.
Earlier in the year, Lemonide’s firm took a short position against high-profile tech stocks such as Peloton Interactive Inc. and Beyond Meat Inc., down 70% and 80% in their values. Lemonide has closed his short positions in both of these stocks.
In an interview with Bloomberg at their New York headquarters this week, Lemonide said one must be careful in buying stocks and maintain a balanced portfolio.
Lemonide said he has more short trades and percentages in his three-decade career now than any time before.
Inflation Hits
Bonds and equity stocks suffered in 2022 as Federal Reserve raised interest rates continuously to fight inflation, which turned out to be more stubborn than anticipated by the officials. The S&P500 index is down 19% this year, its worst annual return since 2008. Bonds and stocks portfolio in 60:40 ratio has lost about 16%.
Targeted Shorts
Lemonide, bullish on certain energy stocks since 2020, also shorted some companies in the same sector, including Occidental Petroleum Corp., Hess Corp., and Texas Pacific land Corp., a store he feels is overpriced. The CIO is, in the meantime betting against companies such as TransDigm Group Inc. and Broadcom Inc., which he feels are highly leveraged.
Lemonide has been building his shorts consistently over time as the cycle plays out in a textbook manner. The financial conditions have become tighter even though the economy continues to expand. The Federal Reserve’s job of bringing down inflation still needs to be completed, and it will need to cool the economy further.
