Barrons: Top-Performing Hedge Fund Says Dump Equities Now!

Article by Emily Horton and Mark Cobley in Barron's Financial publication

A top-performing hedge fund has taken the bold step of almost completely dumping its equity holdings, ahead of what it fears will be a “substantial market correction—or worse.”

Managing Partners Group, a U.K. fund manager that runs a small but strongly performing hedge fund called Vita Nova, said it thinks a setback for stocks is “inevitable,” with the only debate “being whether it will manifest in a bear run, or an outright stock market crash.”

Vita Nova, with assets of $17 million, has made 20.7% in the nine months to the end of September, its most recent available figures. It had a stellar 2017, returning 66% during the year, and has doubled investors’ money overall since launching in 2014.

Those performance stats—which do not include the past month, when markets dropped sharply around the world—compare well against the best and biggest global macro funds, such as Jeffrey Talpins’ Element Capital or Said Haidar’s Haidar Jupiter fund, both up around 25% in the first three quarters of the year.

The MSCI World, a leading global equities index, made 5.4% in dollar terms to the end of September. Other famed hedge funds, such as Louis Bacon’s Moore Global Investment fund, have struggled to produce positive returns in 2018, according to industry figures.

Managing Partners’ fund also reported a positive number for October, the company said, returning 1.21% during the month, as global stock markets retreated by 7.3%.

It has not had a big investment bet on equities for a while, with the majority of its portfolio currently held in asset-backed and insurance-linked securities.

Jeremy Leach, chief executive, said this was because “equities are clearly overpriced based on their current yields. The inevitable increase in interest rates and creeping inflation that we expect to see on both sides of the Atlantic will only serve to weaken stock values further, and the only release valve will be a substantial market correction.”

The Vita Nova fund’s equity exposure is now “limited to a small number of holdings that will be exchanged for short-dated debt securities to lock in value, secure a reasonable yield and enable redeployment of capital”.

The firm believes global monetary economic policy has a part to play in the next financial crash, given its attempt to stabilize an economy that is simply not sustainable. According to Leach, “central banks and monetary policy committees...are just prolonging the agony.”

To read this article in Barron's, click here.