Shorting specialist James Clunie is targeting the US market for new candidates in his absolute return approach, the fund manager has said.
‘I started the year net short equities and many short positions I had in the USA moved very sharply. I had a number of what I would call “oily” short positions, such as Bristow Helicopters which services oil rigs, or Energy Transfer, which services pipelines,’ he said.
‘They fell sharply and I covered those positions in February and that proved timely as markets soon rebounded. One of the things that worked well was to cover some shorts which collapsed in January and February.’
In his current positioning, focusing on the €63 million Global Absolute Return fund, Clunie has the US has is largest market for short exposure. It accounts for 16.1% of shorts, while only accounting for 2.8% of his long book.
‘The portfolio is net short US equities because it looks to use to be one of those stock markets around the world that looks expensive in terms of cyclically adjusted PE ratios. We can find a number of stocks which have vulnerabilities either aggressive accounting or volatile balance sheets, as well as earnings downgrades combined with high valuation.
‘So high valuation and a catalyst to go down leads us to short a number of stocks in the states. Perhaps the most iconic short we have got is Netflix, which we wrote about recently, we are short there for a number of reasons, it revolves around expensiveness and vulnerability.’
Clunie pinpointed streaming service Netflix as a shorting candidate in September, due to the fact it was failing to generate much return for shareholders despite improving subscriber numbers.
Speaking at the time, Clunie and analyst Ivan Kralj, said the firm was ‘burning through cash’ and the long-term prospects did not appear to justify the ‘sky high’ valuations attached to the US company.
Elsewhere, Clunie said he has primarily focused long exposure in Japan, the UK and the emerging markets. ‘These generally seem to have stocks which are cheap in some measure but have reasonably sound balance sheets and there are somewhat out of favour.
‘Typically, for example, mining stocks such as Rio Tinto and South32 have been quite helpful in the portfolio having been a bit tricky to hold a year or two ago.’