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Highlights
- Bronte Capital faced its worst month since 2022.
- Review of strategy underway to reduce risks.
- Notable losses from long holdings like Visa and Alphabet.
Bronte Capital, led by John Hempton, experienced a tough September as the hedge fund posted its steepest decline in over two years. The firm saw a 5.6% drop in returns, which Hempton attributed to challenges balancing long and short positions in a market that continued to rise. This performance has prompted a strategic review to manage risks more effectively in the face of persistent market pressures.
Hempton noted that Bronte Capital’s approach wasn’t suited for the current market conditions, with global sharemarkets continuing their upward trajectory. He explained that while the firm typically underperforms in such markets, September’s results were more severe than anticipated. Bronte Capital’s strategy has previously found success by taking positions against poorly performing companies, but Hempton acknowledged the difficulties of executing short positions in the current climate, especially as stocks with questionable value continued to increase in market capitalization.
A major factor in the fund's recent struggles was the underperformance of its long holdings. Typically, the long positions serve as a hedge against short losses, but this wasn’t the case in September. Key companies like Berkshire Hathaway (BRK.A), Visa (V), and Alphabet (GOOGL) did not perform as expected during the market rally. A significant holding in Regeneron Pharmaceuticals (REGN) also dragged the fund down, as concerns about an exclusivity deal impacted the biotech company's stock.
Further complicating matters for Bronte Capital were regulatory pressures on some of its major investments. Visa is facing scrutiny from the U.S. Department of Justice over its alleged dominance in the debit card market, and Alphabet is dealing with an antitrust case that could lead to a breakup of its core businesses. Hempton acknowledged that regulatory risks are inherent in the fund's strategy, given the global dominance and profitability of some of its key holdings.
In response to these challenges, Hempton revealed that the fund had taken steps to reduce exposure by covering certain short positions and shrinking its overall portfolio. However, Bronte Capital is still exploring additional measures to prevent similar setbacks in the future. Hempton emphasized that any new strategies would be tested carefully over the coming years.
