Investors are waking up to long/short investments because fixed income is just not delivering, according to Loys’ Ufuk Boydak.
‘The big issue is that all the big money is in bonds, bond-related stuff or moderate risk reduced products,’ he told Citywire Selector.
AAA-rated Boydak, who runs several funds at Loys, including the Loys-Global L/S fund, said investors are beginning to see that the fixed income side of their portfolios is not delivering.
‘If you take a 70/30 bonds/equities fund then returns will be pretty problematic in the future. That’s why we are looking for alternatives, alternatives, alternatives: our industry is bringing liquid alts back, which makes L/S funds more attractive in the longer term.’
Boydak’s process differs from that of a usual L/S fund, in that instead of taking individual stock shorts, he holds good companies and hedges the market against them. This is a strategy that he has previously been called out for.
‘There are some experts saying that it’s not a real L/S fund because you’re not doing single stock shorts. The biggest risk for us is not outperforming the market in the long term bull and bear markets, as this would also affect our long-only products.
‘Interest rates are also a risk, people are so afraid of them. Let’s put it this way; a ghost could emerge every now and again. Market volatility like we have recently seen could easily happen again over the next year.’
However, Boydak said the question investors should be asking as they continue on this current growth path is how to exit monetary easing.
‘It’s a difficult situation for the central banks and yeah, people are very sensitive to it. Valuations are higher and that’s why even though the environment at the moment is good, I think most companies in the world are super overvalued – but there should be way more volatility this year.’
Focusing in on volatility, Boydak said during the selloff in early February, which saw markets across the world take large hits, that he was able to add more positions to the fund.
‘I was really buying a lot of stuff over this period and I made around 30 purchases over the course of three days.’
‘The cash position has decreased now, it decreased by about 5%. It actually decreased even more because we had some inflows since last time we spoke. At the moment the fund is around €370 million. I’ve been increasing the hedging position as well so that the net exposure stays the same.
‘The stocks that we are buying are cyclical and are falling more than the market and offer better protection for the future,’ he added.
Over the three years to the end of January 2018, the Loys Global L/S fund returned 12.5% in euro terms. This compares to a 5.2% sector average in the L/S equity sector over the same time period.