Business

Leon Cooperman Optimistic Despite Stock Losses

Reuters Contributor

By Lawrence Delevingne

NEW YORK (Reuters) – Billionaire investor Leon Cooperman still thinks U.S. stocks can generate a positive return in 2016 despite being burned recently by their steep decline.

Cooperman’s $5.4 billion hedge fund firm, Omega Advisors, expects the S&P 500 Index to gain between 6 percent and 8 percent over the coming year, according to a private client letter seen by Reuters.

“We believe that the year-to-date weakness in U.S. shares is not owing to any noteworthy deterioration in the fundamentals important to the stock market but rather to technical items,” Cooperman and deputy Steven Einhorn wrote in the January 20 letter.

Those items were briefly described as “market structure/capital market illiquidity/momentum-driven and price insensitive sellers.”

Cooperman, who practices a so-called value investing strategy using intensive company research, has in the past blamed fast-trading driven by computer algorithms as a cause of stock market deterioration.

The firm’s optimism about stocks has backfired recently. Omega’s main fund fell nearly 10 percent in January, according to a report by HSBC Alternative Investment Group seen by Reuters. The fund also declined in 2014 and 2015, falling 2.1 percent and 10.4 percent, respectively.

A new filing with the U.S. Securities and Exchange Commission shows some of the hedge fund’s recent investment moves.

Omega appears to have dodged additional losses by selling out of solar power company SunEdison, drug business Valeant Pharmaceuticals and internet travel retailer Priceline Group over the fourth quarter, according to the “13F” filings. All three stocks are down double-digits so far in 2016.

The disclosures offer a snapshot of hedge fund holdings as of December 31, 2015 and may have since changed. A representative for Omega declined to comment.

Cooperman and Einhorn’s letter expresses continued frustration with the stock market: “This seeming disconnect between the market and our assessment of fundamentals is disturbing and surprising to us.”

Cooperman and Einhorn repeated their list of seven “positive underpinnings” to U.S. stocks, including continued economic expansion, healthy levels of inflation, additional stimulus from the U.S. Federal Reserve, and more.

They also dismissed commonly cited reasons for the poor performance of U.S. stocks, including the devaluation of the Yuan and weak Chinese growth, low oil and commodity prices, the lack of buyers and sellers for junk bonds, and the continued strength of the U.S. dollar versus other currencies.

The average hedge fund, as measured by the Absolute Return Composite Index, lost an estimated 0.17 percent over 2015, compared with a 1.40 percent gain for the S&P 500, including dividends.

(Reporting by Lawrence Delevingne; Editing by Jennifer Ablan and Andrew Hay)