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AA-rated PM: why I'm at 25% cash in my L/S portfolio

AA-rated PM: why I'm at 25% cash in my L/S portfolio

Loys’ Ufuk Boydak has had a strong run in the Alt Ucits long/short sector, and as a result has recently called time on many of his top-performing holdings. This has seen him slash the Loys-Global L/S fund’s net exposure in the process.

‘Since January we have halved our net exposure. It used to be roughly around 30 to 31% and now it’s about 15 to 16%.

‘We just sold, sold, sold and the pace at which we are buying new stocks is far from catching up so far.’

The fund currently has around €305 million in assets under management and Boydak says even though the team has not changed its investment thesis, it’s important to be aware of a moving market in order to monitor illiquid assets.

‘We’ve had tremendous success in small and mid-cap stocks in the last few years, but we are trying to avoid accumulating stocks that are illiquid because valuation has got ahead of itself.

‘When a bull market is going well, we sell all of the stocks that have been re-rated, which is why our exposure is so low. The problem is, you can’t just take the money and buy into another great company because that one would end up being re-rated as well,’ he says.

Temperature’s rising

Over the past year Citywire AA-rated Boydak says a lot of stocks in his universe have improved, which has encouraged investors to pay more for them. However, if the stock then collapses, Boydak says investors have no downside protection, which is one reason his cash position in the fund is currently so high.

‘We have 25% in cash at the moment. Usually, we would have around 10%, so we’ve more than doubled the position, while our short exposure is now around 60%. With 15% exposure, we are at historical lows.

‘Everyone is arguing, it’s the reports season at the moment, earnings are not totally bubbly, but companies are in great shape and fundamentals are pretty good,’ he says.

Despite this positive backdrop, Boydak says there is so much noise around political and central bank moves, which makes it hard to accurately value a company.

‘There is so much fuel from the ECB, the Fed and all the hopes investors have of Donald Trump delivering. In addition, there have been no interest rates whatsoever for years, and the environment seems a little bit inflated in that sense.’

Chatting in the heart of Mayfair, as Boydak prepares for his next meeting during his tour of London, he tells me that this situation is affecting everyone, including investors in the UK.

‘You see it everywhere, it’s the same in the UK with property prices, but with stock markets we are seeing this perpetual rising every day and it’s a difficult situation. It’s not the sort of market euphoria where you want to have a fully-stocked portfolio. At the moment the re-rating is making stocks totally overvalued.

‘It’s really hard to find good value right now. Nowadays, if you want to buy something then you have to purchase it at a cyclical level,’ he says.

Favourite finds

One of Boydak’s top plays has been UK tech company Computacenter, which has helped his fund return 13.1% in the three years to the end of October versus 7.5% from the average manager in Alt Ucits long/ short equity category.

Boydak currently has around 1.96% of his portfolio allocated to Computacenter and says his team is still mainly focused on the small-to-mid-cap space.

'What’s great about the company is that it is really shareholder-friendly, which indicates management is good when it comes to making capital allocation decisions. At the moment they are generating so much cash they can’t find a better use for it, so they are distributing about 10% of their market cap.

‘In the last four years the stock has returned about 40%, but when you take into account the dividends, it’s more than 70% because they have distributed so much.’

Computacenter provides IT to big corporations and even though it is not a new or different business, Boydak says it is one which is structurally growing.

‘It’s a fragmented market, it also operates in Germany and is one of the biggest players in the field, with a market share of 3-4% as well as a lot of local stores.’

This article originally appeared in the December issue of the Citywire Selector magazine.

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