4 Min Read
(Adds details from Gundlach and Einhorn picks)
By David Randall and Svea Herbst-Bayliss
NEW YORK, May 8 (Reuters) - With the U.S. stock market near record highs, hedge fund managers presented ideas that largely depend on rising property values and corporate mergers for growth at a high-profile investment event in New York on Monday.
The bullish picks on companies ranging from electric car maker Tesla Inc to the Canadian owner of the "Teletubbies" children’s television show marked a change from last year, when several managers expected slowing global economic growth.
A late 2016 equities rally left the average hedge fund's returns lagging the broader market, and speakers this year looked eager to make up lost ground.
Keith Meister, who runs $5.5 billion hedge fund Corvex, revealed the fund's stake in data communications company CenturyLink Inc, which is merging with Level 3 Communications Inc, sending CenturyLink shares up 5 percent.
Shares in Toronto-listed DHX Media Ltd, which owns rights to popular children's television shows including "Bob the Builder" and "Teletubbies," ended up almost 5 percent after Debra Fine, founder and president of Fine Capital Partners, announced her position in the company and pegged its fair value at between C$20 and C$30 per share, more than three times its current market value.
And billionaire investor William Ackman, who runs $11 billion Pershing Square Capital Management, underscored his bullishness on Howard Hughes Corp, emphasizing the real estate company's attractive land holdings. His fund has owned stock in the company since 2010 and is its largest investor.
Ackman, the company's board chairman, noted that Howard Hughes' story is not well known and said it will do more to help investors gain insight. Its shares ended up 3.75 percent.
Some of the few bearish picks came from two noted short-sellers. Jeffrey Gundlach, head of DoubleLine Capital, said that the U.S. benchmark S&P 500 was overvalued, and recommended borrowing money to short the S&P 500 exchange-traded fund (ETF) and hold the iShares Emerging Markets ETF instead.
David Einhorn, known for shorting Lehman Brothers before the 2008 financial crisis and the Wall Street firm's bankruptcy, announced a short position in oil and gas services company Core Laboratories NV, a company which he said was far more cyclical than the market realizes. Shares in the company ended down 2.4 percent.
Hedge funds were caught off guard by the surprise Election Day victory of Donald Trump in November, which helped spark a more-than-12-percent rally in the S&P 500 on the prospect of lower taxes and lighter regulation.
The average hedge fund returned 7.5 percent from the start of May 2016 through March 2017, according to Hedge Fund Research, approximately half the 14.4 percent gain in the benchmark S&P 500 index over the same time.
While Gundlach last year predicted that Trump would be elected president, this year the presenters concentrated on the markets and steered clear of politics, barely mentioning the president or his proposed legislation, including tax cuts, which are seen to help hedge funds.
The hedge fund industry had net outflows of $5.4 billion in the first quarter of 2017, according to HFR. That followed $70.1 billion in outflows in 2016, the largest calendar year loss since 2009, as public pension funds in states including New Jersey, New York, Illinois and Rhode Island pulled money from hedge funds.
Some of the speakers on Monday poked fun at themselves for getting it wrong in a year of so many surprises. Last year Stanley Druckenmiller, one of the industry's best-known macro investors, had urged investors to buy gold because he felt the stock market was overvalued.
"I suggested get out of equities and buy gold. That's why I'm introducing this year," said Druckenmiller, who used to work for George Soros and is now a private investor.
For a table on picks from the Sohn Investment Conference, click here:
Reporting by Svea Herbst-Bayliss, additional reporting by Lawrence Delevingne, Sam Forgione and Michael Flaherty; Editing by Meredith Mazzilli and Bill Rigby