Einhorn Could Have a Mining ETF Problem

Last week, when shares of J.C. Penney JCP plunged and rumors about Herbalife HLF going private surfaced, plenty of folks vilified Bill Ackman's Pershing Square Capital due to the hedge fund's positions in those stocks. Those who enjoy highlighting hedge fund manager trades gone awry may want to consider Greenlight Capital's David Einhorn for this week's wall of shame. Emphasis on "may" because until the first-quarter 13F filings start rolling in, no one knows for certain whether or not Einhorn's hedge fund still maintains a position in the downtrodden Market Vectors Gold Miners ETF GDX. What is not debatable is the fact that Greenlight held 6 million shares of GDX at the end of the fourth quarter. That is the same amount the hedge fund owned at the end of the third quarter of 2012 and, to put things delicately, that trade is not going in Einhorn's favor. GDX, which is home to 31 stocks including Barrick Gold ABX, Goldcorp GG and Newmont Mining NEM, was down 31.6 percent year-to-date at the start of trading Monday. That does not include the ETF's 6.8 percent Monday slide. Again, investors will not know if Einhorn still holds a stake in GDX until the first-quarter 13F filings are published, but assuming no changes have been made to that position, Einhorn probably has some explaining to do to Greenlight clients. GDX closed just over $47 on January 2. Even if the ETF closes at $31 today, Einhorn's position would be about $16 per share underwater equaling a loss of $96 million. To be fair to Einhorn, he is not the only noteworthy hedge fund that is being taken to the cleaners by gold miners. At the end of the fourth quarter, John Paulson's Paulson & Co. held stakes in several GDX holdings, including Barrick, Agnico-Eagle Miners AEM, AngloGold Ashanti AU, Gold Fields GFI and Randgold Resources GOLD. Those stocks combine for roughly 29 percent of GDX's weight. Paulson & Co. also owned over 21.8 million shares of the SPDR Gold Shares GLD at the end of the fourth quarter. The largest ETF backed by physical gold is now down more than 19 percent this year. George Soros may be having some problems with GDX and the Market Vectors Junior Gold Miners ETF GDXJ as well. While Soros did reduce his positions in those ETFs by 800,000 and 400,000 shares during the fourth quarter, he still owned 1.5 million shares of GDX and about 2 million shares of GDXJ at the end of the quarter. Including today's loss, GDXJ has lost over 43 percent this year. The ETF closed around $20.50 on January 2 and is currently trading around $12.50. If Soros still holds 2 million shares, he is staring at a loss of $16 million just this year on that one position. To be fair, there is a reasonable chance the aforementioned hedge fund legends, and perhaps some of their colleagues, have been trimming or outright liquidating positions in the miners and ETFs such as GDX. That would explain some of the intense selling pressure in the ETF over the past week. Two things are certain. First, the next 13F filing season is going to be interesting, particularly when it comes to gold mining stocks. Second, investors that have been paying hedge fund managers an upfront fee and a percentage of profits to be involved with bum trades such as GDX are not likely to be pleased, particularly when they realize they could have just bought the SPDR S&P 500 SPY on their own and generated superior returns relative to the miner's trade. For more on gold miners, click here.