DG Value Funds were down nearly 18% for the first quarter, with 90% of that performance driven by equities and the other 10% driven by credit investments. As of the end of March, DG Value Funds had a net exposure of 48% equity and 52% credit.
Q1 2020 hedge fund letters, conferences and more
DG Value shifts more toward credit
In his first-quarter letter to investors, which was reviewed by ValueWalk, Dov Gertzulin said they have reason to be optimistic, especially about the credit market. As a result, they shifted the portfolio to be more weighted toward credit instead of equities.
He highlighted the historic dislocation in the high-yield debt markets right now, The number of distressed issuers in the U.S. has skyrocketed during the coronavirus pandemic. U.S. corporate high-yield spreads have also spiked recently.
Although the high-yield credit market is very dislocated, it doesn't explain the climate he observed in the broader credit markets. He noted that formerly healthy businesses are watching their debt prices collapse by 40% or more in some cases.
Many of these companies are in industries that have been heavily impacted by the pandemic, like leisure, travel, gaming, restaurants, and real estate. Many of them were or even still are investment-grade-rated.
Some examples of companies that saw flash crashes in their debt where DG Value has made profitable investments include Booking Holdings, Choice Hotels, Expedia, Datasite and Darden Restaurants.
New investments
During the first quarter, the fund bought convertible bonds in NantHealth and convertible debt and equity in Turning Point Brands.
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