“The potential to make money there this year is quite strong,” he added, emboldened bythe Chinese stimulus tapped this weekand light investor positioning. The manager is more optimistic about returns this year, anticipating that US stocks will face a reckoning.
Last year was a challenge for hedge fund managers, according to global performance surveys, but at the same time a handful of Australian long-short funds bucked the trend and generated double-digit returns.John Hempton’s Bronte Capital and Robert Luciano’s VGI Partners posted gains of 20 and 17 per cent after fees in 2018.
Mr Aitken was not carrying many shorts outside of some tactical bets against the tech basket, which paid off in December’s rout.
He singled outApple’s revenue downgradeas an inflection point for investors of all kinds because of its significance for US market performance, and the supply chain behind the iPhone handset. Smartphones, in his view, have peaked.
“It’s got ramifications more widely for where we are in the cycle of tech,” he said. “We had not seen a huge US bellwether stock have a profit warning in years.”
Value in longs
What he found is that his longs — which he owned on the basis of being structurally sound growth stocks — are now value stocks too. Those include China’s largest insurer Ping An, the online juggernaut Alibaba, travel industry tech provider TravelSky, and the aforementioned Tencent.
“I believe they’re structural growth stocks that just happen to be cheap,” he said.“In Asia most growth stocks are now value stocks, that’s what happened last year. A lot of that growth-at-a-reasonable-price became value.”
The strategy now has a negative track record since its inception of 1.5 per cent, according to the December update. The high-conviction fund is also benchmarked against the MSCI World Index in US dollar terms. Larger managers such as Platinum and Magellan benchmark their performance against comparable indices, but in Australian-dollar terms.
Mr Aitken, the chief investment officer of Aitken Investment Management,converted from stockbroking to funds management in 2015. He made a name for himself as a broker with his daily commentaries signed off “Go Australia”, so the strategy’s global focus was perceived as a pivot. Even so, the fund earned a respectable 17.6 per cent return in 2016-17, its second year.
“You can’t lose your conviction in the companies you believe in the next three to five years,” he said, with the caveat that he exited ASX-listed CYBG. He is bullish on Aristocrat.
“Most of the things you want to short that face the consumer are all so well shorted [on the Australian Securities Exchange]. Those shorts may well be right, but I am cautious on the east coast of Australia.”
The negative wealth effect of falling residential property prices “is quite a big event, but as we did see in the GFC, Australians service their mortgages under all circumstances,” he recalled.
And he does not own any banks, anywhere, believing them to present a value trap.