One hedge fund manager has done more than just get a tan at the beach while in the Hamptons this summer.
Boaz Weinstein, the former star Deutsche Bank trader who now runs Saba Capital Management, is up 90% so far this year on a series of bets that have produced hit after hit for the hedge funder who’s outperforming nearly all rival investment firms.
From his compound in Sagaponack, Weinstein has added to his profits every month this year, trading credit and derivatives of companies including the insolvent German fintech Wirecard AG (OTC: WCAGY), and struggling retailers Staples and Macy’s (NYSE: M), as well as loading up on cheap closed-end mutual funds.
“Markets are at an unstable place right now,” Weinstein said. “I look out at the next five months, and there are lots of known unknowns,” including everything from the coronavirus pandemic to rising tensions with China and the upcoming U.S. presidential election.
“There are dislocations today that are as large as they were three months ago,” Weinstein said, adding that he predicts there will be more moves to make as default rates mount. “So many companies defaulted, or are about to default, despite all the things the government has done.”
Weinstein’s trades often revolve around credit-default swaps – a kind of insurance policy that pays out if a borrower defaults.
But as the Fed’s efforts amid the coronavirus crisis have inflated prices on some junk bonds, Weinstein has shifted to selling the CDS of investment-grade companies including AT&T (NYSE: T) and Verizon Communications (NYSE: VZ), and buying high-yield names like Devon Energy (NYSE: DVN) and Targa Resources (NYSE: TRGP).
He’s also raked in profits on businesses whose stocks and bonds show contradictory narratives. With Wirecard, Weinstein sold CDS expiring in December, and used that premium to buy puts on the stock.
“Even if the bonds went to zero, you still make money,” he said. “It’s a solid gain for us.”
With these plays, Weinstein looks for companies where the bonds have been excessively beaten down but where the CDS is inexpensive. Weinstein has been using the strategy with Macy’s, Rite Aid (NYSE: RAD), and Staples.
“June has been one of our best months of the year, even though markets have been buoyant,” Weinstein said. “It’s a messy market, and it serves our strategy well.”