Threadneedle American Absolute Alpha managers Ashish Kochar and Amit Kumar anticipate that volatility is here to stay, amplified by central bank intervention in markets. In this environment, they expect long/short managers to thrive.
Over the last three months, the managers have spotted opportunities to add to the ‘special situations’ bucket within their portfolio. For example, they increased the fund’s position in Time Warner Cable on recent share price weakness.
They currently have around half of their long book in stocks that are viewed as secular growth stories.
These companies have pricing power and defensive business models. The managers include blue chips such as Google and Visa in this bracket, and they are happy to hold these stocks for the long term.
‘In a low-growth environment, people will pay more for these companies. The other bucket is special situations, which allows us to have returns in the near and medium term,’ Kochar says.
The Columbia Threadneedle managers expect tech stocks will perform better during the second half of the year.
Biotech represents another area of interest, having seen big drawdowns last year, as a result of concerns about future healthcare policy in the US. The managers are now starting to look at opportunities on both the long and short side.
So, what lies ahead for markets? Kochar and Kumar suspect the next six years will be very different in nature to the previous six.
They foresee a prolonged low-growth environment and unlike the past six years, central banks across the globe are now more likely to pursue different policies in response to this challenging landscape.
‘Long term, the big question mark for everyone is China and the role it will play in respect to the rest of the world from a macro standpoint,’ Kochar says.
Over the 12 months to the end of April 2016, the Threadneedle (Lux)-American Absolute Alpha fund lost 1.9% in euros terms. This compares to the average manager in the Alt Ucits – Long/Short Equity sector, who lost 4% over the same period.
These comments originally appeared as part of a supplement published with the May 2016 edition of Citywire Selector magazine.