David Einhorn’s Greenlight Capital delivered an 8.2% return in the first quarter, far outpacing both the S&P 500’s 4% decline and the broader hedge fund universe, which posted an average loss of 0.4% according to HFR. In a quarterly letter to investors, the firm credited the standout performance primarily to its gold exposure, calling the metal “by far the biggest winner” in its portfolio.
Gold rose 19% during the quarter, a move Greenlight capitalized on through a combination of physical gold holdings and call options. Greenlight’s positioning continues to reflect its broader thesis that inflationary pressures remain deeply embedded in the U.S. economy—an outlook that has shaped much of its asset allocation under the Trump administration.
According to the letter, the firm's investments in both gold and long-duration inflation swaps stem from a unified view: most of the administration’s economic and trade policies ultimately point to structurally higher inflation. This view has not only influenced its commodity positions but also informed its broader macro exposure, including inflation derivatives and currency hedges.
“We believe that nearly all current administration policy roads lead to higher inflation,” the firm wrote, noting that its inflation-linked trades, alongside gold, helped power outperformance. The letter reiterated Greenlight’s conviction that the economy is entering a prolonged period of elevated inflation expectations—fueled by ongoing fiscal stimulus, deregulation, and a combative trade posture that has disrupted global supply chains.
Beyond its inflation thesis, Greenlight made a decisive pivot in equity strategy during the quarter. In late February, sensing that the equity rally was faltering, the firm shifted from a cautious stance to a definitively bearish one. That timing proved significant, as the equity market showed early signs of rolling over. Greenlight now believes the U.S. market is in the opening stages of a sustained bear cycle.
“We pivoted from conservative, but not bearish, to bearish,” the letter said, highlighting a strategic reduction in net equity exposure. The firm emphasized that its current positioning is designed to avoid being whipsawed by what it calls “rip-your-face-off” rallies—violent, short-lived market surges that frequently occur during broader downtrends. These rallies, often triggered by extreme sentiment shifts or news-driven headlines, can trap investors looking to buy the dip, a dynamic Greenlight is actively working to avoid.
Rather than chase fleeting rebounds, Greenlight has prioritized resilience and hedging. The firm’s equity book has been reshaped to reflect a more defensive and contrarian posture, leaning into opportunities that reflect a broader realignment of market risk under bearish conditions. Among the notable trades disclosed were short positions in companies that “cater to liberal tastes.”
While the letter did not identify specific names, the rationale centered on an expectation that consumers in left-leaning demographics—particularly those affected by recent federal job reductions—will begin pulling back on discretionary spending.
Greenlight also disclosed a long position in SOFR futures, which it expects to benefit if the Federal Reserve lowers interest rates more aggressively than current market pricing suggests. This is consistent with the fund’s view that monetary policy will ultimately respond to deteriorating economic conditions, even as inflation remains elevated. The combination of elevated inflation and rising recession risk presents a complex macro backdrop—one Greenlight believes is not yet fully priced into equity or rate markets.
Another key macro hedge is Greenlight’s “tail protection” trade against the U.S. dollar. The firm has implemented a position designed to profit if the dollar weakens materially against the euro and yen. Greenlight’s thesis here is that currency markets are beginning to reflect both the deteriorating fiscal outlook and the potential for Fed rate cuts in the face of slowing growth.
In a scenario where the dollar experiences further structural weakness, this hedge provides a layer of downside protection for the portfolio. Notably, some dollar weakness has already materialized during the quarter, contributing positively to performance.
Taken together, these positions underscore Greenlight’s increasingly defensive posture and reflect a growing skepticism about the durability of current market valuations. The firm’s caution is not new, but it has become more pointed in recent months, particularly as policy uncertainty intensifies and market volatility accelerates.
For RIAs and wealth managers, Greenlight’s pivot may be instructive. While the broader equity market continues to attract inflows and remains near historically elevated valuations, Greenlight’s move to reduce equity exposure and build tail-risk hedges suggests a belief that fundamentals are diverging from price.
Advisors should also take note of Greenlight’s continued emphasis on real assets and inflation-linked securities. The firm’s longstanding position in gold—now augmented by complementary macro trades in the rates and currency markets—demonstrates a multi-asset approach to navigating inflationary regimes. This kind of cross-asset positioning may serve as a blueprint for those seeking to insulate client portfolios from the eroding purchasing power of fiat currencies and the volatility inherent in late-cycle equity markets.
The warning on equities is particularly stark. Greenlight’s view is that U.S. stocks have likely entered the early innings of a bear market, one that could stretch across multiple quarters. The firm has expressed concern that many investors remain complacent, conditioned by years of policy-driven rallies to “buy the dip.” But in Greenlight’s view, that conditioning may prove costly in an environment where inflation remains sticky, interest rates stay elevated, and profit margins face sustained pressure from both labor costs and input price volatility.
In this context, Greenlight’s move to lower its net exposure, while selectively hedging currency and rate risk, signals a belief that capital preservation may be more important than return maximization in the quarters ahead. Advisors managing taxable accounts may also benefit from considering similar defensive allocations—not only as a tactical response to near-term market risk, but as part of a broader portfolio rebalancing designed to reflect long-term structural shifts in inflation, trade policy, and monetary direction.
Notably, Greenlight’s allocation to long-duration inflation swaps deserves closer attention. While TIPS remain a more traditional inflation hedge, swaps offer greater leverage and more tailored exposure, particularly for institutional and high-net-worth portfolios. They also allow managers to express duration-specific inflation views, which can be especially valuable in a policy environment where short-term inflation may diverge from long-term expectations.
Advisors looking to incorporate this type of exposure should ensure clients understand the nuances of counterparty risk, collateral requirements, and mark-to-market volatility, all of which are more complex than owning TIPS outright.
In the current environment, where market narratives are shifting quickly and policy signals remain mixed, Greenlight’s letter offers a clear thesis: inflation is entrenched, equities are overextended, and traditional hedging frameworks may fall short. For wealth advisors, that message may merit a reassessment of portfolio construction strategies. The case for incorporating real assets, opportunistic hedges, and flexible rate exposure is growing stronger—not only as a tactical safeguard, but as part of a more adaptive long-term asset allocation framework.
Ultimately, Greenlight’s Q1 results are a reminder that performance can still be found in volatile markets—provided the strategy is anchored in a coherent macro view and supported by diversified hedging mechanisms. Advisors would do well to consider whether their current models reflect the changing market regime or whether deeper structural recalibrations are warranted. As fiscal and monetary conditions evolve, so too must the architecture of portfolios built to withstand them.
