President Trump's policy proposals will create a favourable environment for event driven investing, K2 Advisors’ founding managing director David Saunders has said.
‘With the way things are stacking up for the US economy, things look pretty good. In the Alt Ucits space, if some of the central policies that Trump has proposed actually get passed, then I think you will see a very busy event-driven environment,’ he told Citywire Selector.
Saunders currently has 15.77% of the $1.1 billion Franklin K2 Alternative Strategies fund in event-driven positions, despite there being a lull in assets in this sector following global political events.
‘Assets under management hasn’t really changed over the past year, there was a lull around Brexit and a lull in activity around the US election, but outside of that, it has been steady.'
Saunders said the fund’s event-driven allocation provided the strategy with good performance over the fourth quarter, with both subadvisors to the fund delivering gains.
Saunders also said subadvisors also benefitted from both the energy and communications sectors.
‘We like basic materials and areas we think are going to be beneficiaries of the infrastructure spending that has been proposed by Trump,' he said.
'We are also seeing very strong infrastructure spending continuing in China and of course, in Europe. We think the sector has been under invested in since 2008.
‘We like the longer term basic materials exposure in our portfolio. Trump’s corporate tax rate plans will also have an effect on the sector.’
Picking up performance
In the fourth quarter, equity indices weighed on the fund’s returns and impinged on the long/short equity space, where Saunders currently has 27.38% of the fund allocated. Saunders said this sector has struggled in core areas.
‘Last year some strategies within the portfolio did not perform as well as we would have liked and this was primarily long short equity. Most L/S equity managers struggled in the core areas of healthcare, technology, and consumer.
‘The early part of last year was much more focused on dividend stocks, as investors who were concerned about rising rates, looked to companies that had high dividends and those with the best-performing stocks for the first three-quarters of the year.’
Saunders said the US election put a ‘really meaningful’ shift in place, pushing investors to focus on infrastructure companies. He said these are set to benefit from a higher coal trade in the US based on Trump’s polices.
‘Investors in L/S equity moved out of tech in the fourth quarter to pursue opportunities in the energy sector in light of proposed policies by the US administration, but L/S equity managers were struggling to be in positions.
‘Since the election, we like L/S equity managers and we believe there is going to be more dispersion and an encouraging spread between winners and losers in the stock market and active managers will be able to take advantage of that.
‘The new administration in the US, with their new policies that they are trying to put in place, are going to actually be a benefit for L/S managers and we have certainly seen that in the first three and a half months since his election.’
K2 Advisors were acquired by Franklin Templeton is 2012 with the Franklin K2 Alternatives Strategy being launched in 2014.
The Franklin K2 Alternative Strategies fund returned 6.1% in euro terms in the fund of funds sector, over the one year to the end of February 2017. This compares with a 1.7% sector average over the same time period.