The duo said they had exploited weakness in this sub-sector through tactical shorts in the Threadneedle (Lux)-American Absolute Alpha.
In a market update, the two long/short specialists said the railway bet had proven to be one of the best positions for the $159 million fund over the course of 2014.
Robson said: ‘One of the peculiar things about the US shale explosion is that most of it is in the middle of nowhere and there is no pipeline infrastructure. So there are two ways to get it out, either you build pipelines or you use rail cars and with the build out there was increasing demand for rail cars.’
‘If you look at the spread between West Texas and Brent, as that got out to $20 last year that made it very economical to load oil onto rail cars and shift it. Huge backlog in demand for these rail car producers and everything was going fantastically.’
However, Robson said, following increased work on looking at the future shape of the shale market, led himself and Kochar to increase short exposure to railway companies. A position which proved hugely beneficial.
‘What we saw was, as pipeline capacity was coming through, that spread would start to fall, would squeeze the economics of crude-by-rail and that with some issues of the company we wanted to short in the first place. That result was we could make significant alpha for our clients,’ he said.
While this position has been reduced, Kochar said the duo’s long positioning is now targeting consolidation sectors, most notably in the semiconductor and telecoms markets.
‘The cable consolidation theme is a big story, while we have been investing in the cable space for a very long period and most notably Comcast, where we have been able to benefit over the last few years,’ he said.
‘Why do we particularly like this industry? One, because this industry has the ability to price over and above inflation and that is one of the key drivers for us, as we are not looking just over the short-term but the long-term.’
Kochar said the attempt by Comcast to take over Time Warner Cable was particularly fruitful for the fund, which was a failed acquisition which led to the stock price falling considerably.
‘It presented an excellent opportunity for us to get involved because the standalone value was higher than what the market volatility had given us in terms of stock price,’ he said.
‘More importantly, the company was still in play, the buyer was Charter because of what its owner John Malone had said in terms of public comments, this was a classic game theory situation, where owning Time Warner Cable was the optimal winning strategy.’
The fund is one of the best-performing in the Citywire Alternative Ucits – Long/Short Equity sector in the short-term, having returned 2.3% over three years versus an average manager loss of 0.3%.
Meanwhile, on a three-year basis to the end of June 2015, the fund returned 5.2% against a 20.9% average manager return.