Carl Icahn (Trades, Portfolio)’s bets against the market and certain stocks paid off in the fourth quarter, overcoming declines in his long positions to deliver a 7.9% gain for his funds for 2018.
According to SEC filings, Icahn’s short book returned 7.8% for the year, versus a 0.8% loss in his long portfolio. A category called “other” gained 0.9%. The performance beat the past two years for Icahn Enterprises’ Investment Funds, which rose 2.1% in 2017 and lost 20.3% in 2016.
Market volatility at the end of the year contributed to Icahn’s advance. His shorts included $642 million in broad market hedges, which benefited as the S&P 500 plunged 13.97% for the fourth quarter. Icahn had been predicting a market correction for years, telling CNBC in 2016 he foresaw a “day of reckoning” coming for U.S. stocks in absence of additional fiscal stimulus. Low interest rates had artificially inflated stock prices without the underpinning of strong economic fundamentals, Icahn said.
By the first quarter of 2016, Icahn Enterprises’ net short position ballooned to 149%. But the strategy did not pay off initially, with the value of the shorts dropping 34.1% for the full-year 2016 as the S&P 500 soared 9.54%. Since then, he changed the funds to a net long exposure of 14 at the end of 2017, but returned to net short exposure to 24% at the end of 2018..
Icahn also had a bet in place against certain sectors, particularly stocks in the energy sector. The Energy Select Sector SPDR (XLE, Financial) of the S&P 500 plummeted 25.32% in the fourth quarter.
Declines in the long portfolio, where Icahn frequently invests in companies and campaigns actively for change, occurred across various stocks. His largest position during the quarter was Herbalife (HLF, Financial), which gained 8%. CVR Energy Inc. (CVI, Financial), the second largest, declined 15% in the fourth quarter, while the third largest, Cheniere Energy Inc. (LNG, Financial), tumbled 16%.
From inception in November 2004 to the end of 2018, Icahn’s funds gross return totaled 138%, or 6.3% annualized.
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