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Jupiter’s Clunie: why it makes sense to short the US

Jupiter’s Clunie: why it makes sense to short the US

The outlook for longer-term returns from US stocks is more subdued than many investors realise and there are greater opportunities for shorting companies, Jupiter Asset Management’s James Clunie has said.

Speaking in an investment outlook, Clunie, who runs the Jupiter JGF Absolute Return fund, said he had not taken a macro view on the US but had gradually increased short exposure there.

Clunie, who had said he was looking to increase US shorts last autumn, currently has 20.9% of his €77 million in short bets on the US. This is an increase from 16.1% between October 2016 and the end of November 2016.

‘We didn’t arrive at that from a top-down view, as we didn’t say we dislike the US market, we simply pick stocks long and short and found we were short the US.

‘But when we look at cyclically adjusted PEs, which appears to be a sensible indicator for long-term returns, it seems it is not a daft idea to be short US, long UK and Japan by comparison,’ he said.

‘We are also short a number of highly levered stocks in the US, which leads us to be long on strong balance sheets. We have got some style tilts, which might work for the fund; they might not.’

Elsewhere in the fund, Clunie said the main challenges facing the fund in 2017 are style risks. ‘The fund is long value stocks and short of not-values stocks, we are also a little bit short of quality stocks. That is unusual and controversial but that is because many high quality are actually such bad value that the value outweighs the quality.  

‘On a sector level, we are long of oil stocks and integrated oil and gas but short of consumer staples and food stocks. Then we have got lots of idiosyncratic stock positions, as we have got about 60 or so long positions and about 110 short positions in our fund.’

The largest positions in the fund at the end of November 2016, which is the most recent available data, are a 2.5% allocation to a physical gold ETF and a 2% bet on oil conglomerate BP. The 10 largest positions comprise 13.2% of exposure.

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