Markets Looking Forward to Biden Era

President Joe Biden’s economic agenda will focus on “building back better,” says Fraser Lundie, head of credit at Federated Hermes, a Pittsburgh-based capital management house with $575.9 billion under advisement. As the week of the presidential transition began, Lundie spoke to Bloomberg News, adding his view that renewable energies would remain a strong investment pattern in the coming year.

In a separate video short, Lundie’s colleague, Federated Hermes Chief Investment Officer Stephen Auth predicts the new administration will be a “mixed blessing” for investors, but ultimately predicts market forces to win out over politics to drive a strong year for Wall Street.

If the new administration focuses on “heavy tax programs… I think that’s probably not positive for markets. On the other hand, he’ll spend a lot of money and that is positive for markets,” he says.

PCs Will Play Catchup with Apple in 2021

Much has been written about the economic havoc that has accompanied Covid-19. The global pandemic has certainly led to a great deal of upheaval to global markets, but not all the impact has necessarily been bad. Large corporations who have been able to adapt to new spending patterns – think Amazon, Target, Walmart – have not only withered the storm, but pivoted to capitalize on the changing winds.

Here, the Wall Street Journal gives an excellent overview of the emerging trends. 

Wall Street Journal’s Joanna Stern gives an excellent overview of Apple’s breakthrough in 2020 and looks forward to the industry catch-up this year.

Other trends to look forward to in the year to come is the emergence of digital marketing tools to reach out to a larger base of consumers who are increasingly working from home. Just one more thing to keep our eyes on as the pandemic changes our society in predictable and unpredictable ways.

Covid Vaccine Could Spell Trouble for Gold Markets

Vaccines against the Covid-19 virus are predicted to be a bonanza for pharmaceutical giants Pfizer (NYSE:PFE) , Moderna Moderna (NASDAQ:MRNA) and Oxford University/AstraZeneca (LON, NASDAQ: AZN), and there is virtually no way to measure the impact the trio of vaccines will have on most global industries.

The gold market could be the notable exception. After hitting a record high of US$2,067.15 per ounce on August 7, 2020, the precious metal closed on January 6, 2021 at US $1906.90, a drop of 7.75 percent. In addition, the Royal Bank of Canada slashed its annual forecast for gold to $1,810 per ounce from $1,893.

In addition, Reuters reported a spike in short trades vis-à-vis the gold market at the end of 2020, with Barrick Gold bolstering its trade volume from 14.9% to 24.8% for the second half of the month.

The report also said that competitors Newmont Corp moved from 8.8% to 11.4%, from 8.8%, over the same period, while trades in Kinross Gold rose to 20.6%, from 18.2%.

Precious metals are seen as an accurate benchmark to measure macroeconomic trends. As tangible asset, many investors see them as a safe investment during periods of economic uncertainty. During pandemic-ravaged 2020, gold provided security and stability as volatile industries such as travel and sports struggled.

Now, as hope grows that the vaccines will allow a resumption of normal commerce and trade, many investors are likely to be more willing to trade the security of gold for the potential of higher returns in other sectors.

“While we are by no means out of the woods in our view, the light at the end of the tunnel means that gold markets should begin to see an unwind of the trends that became quite exaggerated over the course of 2020,” Royal Bank of Canada analysts told Reuters.

Pandemic Conditions Spotlight Human Money Managers

In recent years computer-driven quantitative investing has made human decision-makers look outdated and less successful. That is until coronavirus reared its ugly genome. The year 2020 for many people has been one of tragedy and loss, but for flesh and blood stock-pickers the year proved to be quite profitable.

It seems that even for the most sophisticated quants, the complicated, roller-coaster year, was something confounding. Humans, on the other hand, were able to navigate through the dark forest and emerge with some of their best results in ten years. Tiger, Coatue, and D1 all declared returns surpassing 35%. This kind of bottom-line breathed new life into the notion that humans, under certain circumstances, can outperform machines.

“Stock-pickers had several years of self-inflicted under-performance in the past decade, and the narrative was that computers had defeated humans,” said John Thaler, a veteran equity manager who closed his fund in 2015 and started a new firm, Hampton Road Capital Management, in 2020. “Then, the quants hit an air pocket of tough relative performance, and this year, long-short equity managers outperformed by an enormous amount.”

Former Chief of Staff Raising Investments for New Hedge Fund

Mike Mulvaney, former White House chief of staff under Donald Trump, is starting a new hedge fund. Mulvaney, and his partner Andrew Wessel, need to raise at least $1 million, the legal minimum needed to launch a hedge fund. Currently, Mulvaney represents the Trump administration in Northern Ireland as a special envoy.

Mulvaney’s fund will be called Exegis Capital and is raising the money from investors according to the rules of the SEC’s 506(b) statute. That rule, according to the website of the SEC, permits companies to “raise an unlimited amount of money and can sell securities to an unlimited number of accredited investors.”

Mulvaney is a Republican former congressman from South Carolina. Under the Trump administration, in addition to serving as chief of staff, he was the head of the Consumer Financial Protection Bureau.

The partners first announced that they were creating a fund during an August interview with S&P Global. At that time, they said they were planning to focus on small- to mid- cap financial sector stocks.

In another interview more recently Wessel said that they hope to raise much more than $1 million, seeking investors who are either “high-net-worth” or “ultra-high-net-worth” people who have at least $30 million in assets.

Wessel added that Mulvaney’s experience in Washington should give him insight into what effects upcoming regulations might have on their investments.

“For the Biden administration we are probably looking at more regulation, not less, and we are going to pick our spots there,” Wessel said regarding their investment tactics.

Dalio Endorses Crypto as Alternative to Gold

7 November 2018; Ray Dalio, Founder, Co-Chief Investment Officer & Co-Chairman, Bridgewater Associates on the Forum Stage during day two of Web Summit 2018 at the Altice Arena in Lisbon, Portugal. Photo by Harry Murphy/Web Summit via Sportsfile

Founder of the world’s largest hedge fund, Ray Dalio, a skeptic of bitcoin, has changed his mind and now says cryptocurrency should be a part of a well-balanced investment portfolio.

The founder of Bridgewater Associates says that bitcoin “could serve as a diversifier to gold and other such store holds of wealth assets.”

Dalio has been the co-chief investment officer of Bridgewater since 1985, which now manages about $140 billion in assets. In November Dalio posted to Twitter that he “might be missing something about bitcoin,” and would “love to be corrected.” Yet, he was still not convinced and had several important questions about bitcoin, which experts on bitcoin immediately answered.

In response Dalio wrote:

“I think that bitcoin (and some other digital currencies) have over the last ten years established themselves as interesting gold-like asset alternatives, with similarities and differences to gold and other limited-supply, mobile (unlike real estate) storeholds of wealth.”

New Asia Hedge Spun Off from York

A new Asia-focused hedge fund with $2.7 billion AUM will be the result of York Capital Management’s move to divest of its hedge fund business.

The new fund will be called MY Alpha, to be run by the regional Chief Investment Officer Masahiko Yamaguchi. Yamaguchi is based in Hong Kong.

MY Alpha will come to life in 2021 and will be one of the largest hedge fund spinoffs in Asia by a global money management firm.

The outgoing year was not a great one for new hedge fund growth. If the last month of the year is similar to the previous 11 months, then 2020 is on track to be the year with the fewest new funds in the past 20 years. Investor dissatisfaction and the pandemic contributed to the slow year for hedges.

York has been investing in Asia for 13 years with strategies such as event-driven, fundamental equity, credit, and risk arbitrage.

Bridgewater Associates Changes Direction During 3Q 2020

Ray Dalio, Founder, Co-Chief Investment Officer & Co-Chairman, Bridgewater Associates Courtesy of Web Summit

A look at Bridgewater’s 13F filed with the US SEC reveals that Ray Dalio’s hedge fund firm has invested about half a billion dollars into some of the world’s largest firms while withdrawing from an ETF that tracks large-cap US equities and positions in three China ETFs.

The moves were made during the 3rd quarter of this year and reflect his recommendation that investors diversify between currencies, asset classes, and countries in order to reduce risk but not reduce opportunities.
Dalio founded Bridgewater Associates, the world’s largest hedge fund, which manages about $140 billion.

During the 3rd quarter of 2020, Dalio invested in about $392 million in Alibaba, $195 million in Walmart, and about $100 million in Coca Cola. Alibaba is not a new bet for Dalio, although he did increase his exposure. But Walmart and Coca Cola are new stocks in his portfolio. He also increased his bets in McDonald’s, Abbott Labs, Estee Lauder, Mondelez, Procter & Gamble, Johnson & Johnson, and Danaher.

What is surprising about Dalio’s 3Q activity is his divestment from China, who has until now been bullish on Chinese investments. He has lowered his positions in three China ETFs by several millions of dollars. In the past, Dalio has said that not investing in China is “very risky.”

As SPACs Explode So Go Merger Arbitrage Funds

Merger Arbitrage hedge funds have had a good year, according to Lyxor Asset Management’s Cross Asset Research management department. They say it’s because of the growth in the issuance of Special Purpose Acquisition Companies in the United States during 2020. SPACs are useful to investors strategizing merger arbitrage deals because of their low volatility return profiles.

“SPACs were strong positive contributors to Merger Arbitrage returns last month. They should allow robust M&A volumes in the quarters to come, with USD 50 billion of unleveraged capital available to make acquisitions,” according to the report.

Attractive deal spreads, larger M&A volumes in the US, and its power of diversification have all contributed to the recent success and growth of Merger Arbitrage.

The Lyxor report adds:
“This contributes to explain why the strategy was highly resilient in October (2020), despite the equity market plunge amid renewed lockdowns in Europe.”

Peter Zhou Launching a Hedge Fund of His Own

After ten years at Coatue and three years at Blackstone before that, rising investment star Peter Zhou is planning to open his own, tech-based, hedge fund.

Zhou left Philippe Laffont’s Coatue early in 2020, where he was a senior managing director. He is rumored to already have gathered $300 million to start his fund. No name has yet been mentioned for the fund.

He is a fundamental investor who made the Forbes’ 30-under-30 list in 2015 when he was 28 years old. At that time Forbes called him a specialist in hardware technology stocks.

In 2020 he brands himself on his LinkedIn page as a “generalist tech investor.” He went to Harvard, was born in Shanghai, and grew up in Minneapolis, Minnesota.

Launching new funds is a tricky business during the coronavirus pandemic. Social distancing is a hindrance to meeting potential backers. According to Hedge Fund Research twice as many funds closed during the first half of 2020 than new funds have opened, with 213 launches and 483 closings.

Zhou’s new fund will be adding a branch Coatue’s to the Tiger Management family tree.