With the wounds still fresh from the global market sell off at the end of 2018, we think it is important to remember that amid the doom and gloom there are myriad opportunities for investors in the year ahead.
The headwinds that were affecting markets last year remain strong – macro and geopolitical issues will continue to dictate sentiment – but with mispricing comes openings and this current climate is a perfect playground for investors to take advantage in 2019.
When identifying independent investment managers for our flagship ‘fund of funds’ Lucerne Growth, one of the key things we look for is their ability to manage a flexible pool of capital, which we believe makes them adaptable in all investment markets.
We spoke to a selection of our managers, with track records of delivering consistent returns regardless of market conditions and picked their brains on how they saw the year panning out.
One of our largest weightings in Lucerne Growth is Bronte Capital, which closed to new investors in 2018.
Bronte was one of the top performing funds in Australia in 2018 and despite the chaos of December’s quarter, they managed to advance 6.5% in December alone.
Senior Analyst Andrew Reeves said: “Over recent years easy money policies from the world’s central banks have resulted in markets and their underlying securities moving in unison.
“With these policies coming to an end we are seeing greater dispersion of returns between quality and low-quality stocks. The markets will reward and allocate capital more rationally providing increased opportunities, particularly on the short side.”
Totus Capital is an independent absolute return manager, founded in 2012. Totus is a performance-focused, bottom up, stock picking manager that pays equal attention to capital growth and capital preservation.
Founder Ben McGarry reflected: “While the December quarter was tough, with the ASX300, S&P500 and Nasdaq each down 8%, 14% and 18% respectively, we think the current bear market has further to run.
“The main driver of the recent sell off is the gradual removal of central bank support through both tighter monetary policy and shrinking of the Fed balance sheet and what this may mean for the outlook for growth. Concerns around future growth have been exacerbated by the ongoing trade tensions between the US and China.
“We therefore think markets will likely remain volatile until there is some change in these dynamics at play. We have hedged our core US long positions with single stock and index shorts.
“Closer to home, we consider the combination of an election and a housing slowdown is likely to continue to provide ample opportunity for shorts.
“Ultimately, bear markets provide the best investment opportunities and we expect the current environment to be no different.”
Armistice Capital is a global, long/short, value-oriented and event-driven hedge fund focused primarily on the health care and consumer sectors.
Chief Investment Officer Steven Boyd said: “Generally, we think the increased volatility in the market is great for active trading strategies and stock pickers focused on generating alpha.
“We think the market environment also increases the likelihood of strategic actions taken by companies, and 2019 will be a pivotal year for consolidation. Particularly in the health care sector where it tends to be highly synergistic, and companies are sitting on record levels of cash, supported by a friendly administration, and now valuations that have been somewhat reset.”
Tribeca Investment Partners
Tribeca moved into the resources focused private lending space significantly last year with the launch of their Tribeca Global Natural Resources Credit Fund.
Portfolio Manager Hayden Smith believes this is an auspicious time for investors in this sector, he said: “We are particularly excited about the opportunities for private lending in the natural resources sector over the coming year.
“The impact of more stringent capital adequacy requirements at banks, coupled with the bear market for resources during 2012-15 has resulted in traditional lenders pulling back materially from the sector.
“The ability for a specialist lender such as Tribeca to work with corporates to address this funding gap while securing attractive risk adjusted returns for our investors has increased materially.
“We feel the backdrop remains constructive for the resources sector which in a historical context is hovering at near record lows relative to broader equity markets. This is providing investors an attractive entry point in the cycle to gain exposure to high quality assets at deeply discounted valuations.”