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November 22, 2022updated 06 Dec 2022 2:25pm

Long Europe, short Ocado: Hedgies’ 2023 stock picks

By Will Wainewright

Traders have revealed their 2023 stock picks at the Sohn London charity event, which gives a rare window into leading hedge fund trades 

The UK has its first hedge fund manager prime minister in Rishi Sunak, who worked for Sir Chris Hohn at TCI Fund Management before entering politics. But the exact work of Mayfair’s ‘hedgies’ — elite traders and investors who tend to eschew the limelight — is often hard to discern.

A band of leading hedge fund managers pressed pause on the publicity-shy approach at Sohn London, an investment ideas conference in support of paediatric cancer research.

Here’s what some top hedgies are betting on in 2023.

Investment tip: European recovery

Europe has been out-of-favour with global allocators this year amid high inflation, weak growth and war in Ukraine. However, Mike Edwards, deputy CIO at New York-based Weiss Multi-Strategy Advisers, tipped the region to do better next year.

‘We are actually fairly constructive — in a contrarian sense — amid a mood of real doubt,’ he says. ‘In particular, we are relatively constructive on Europe and European cyclicals.’

Stock picks at Sohn London from speakers including Abhishek Agrawal, Ivelina Green and Mike Edwards

Edwards tipped European stocks to benefit from the unwind in US tech stocks. ‘We are clearly seeing rotation out of US mega-cap tech,’ with money going to ‘reliable cashflow’ companies.

‘That brings European cyclicals into focus, an area under-emphasised among global allocators.’

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Remarkably, at times this year the seven largest US tech stocks have had a market cap larger than all of capitalised Europe.

Niche opportunities

The Sohn event is renowned as a rare public window into leading hedge fund manager trades.

Ivelina Green, the founder of Pearlstone Alternative in London, was positive on the outlook for distressed credit. And in an example of how niche the pitches can be, she pitched litigation/liquidation claims pertaining to the 2014 bankruptcy of Portuguese lender Banco Espírito Santo.

Some of the trades drew inspiration from unexpected quarters. Abhishek Agrawal, an event-driven manager at Polygon Global Partners, tipped games-based learning app Kahoot! that allows users to create and play games.

Agrawal told the audience he ‘didn’t realise it was so popular with kids’ until his daughter came back from school raving about the app.

Learning-based games app Kahoot! Image: Shutterstock

Stock pick: Short Ocado

Chris Dale, who runs long/short equity firm Kintbury Capital in London, is betting against Ocado. He said he saw a 50 per cent downside in the share price.

‘Pipeline and Covid drove the valuation upward,’ he said, but rivals like Aldi and Lidl have made much more progress since.

He was one of several speakers at the event to highlight the shift in market drivers, with the era of Covid lockdowns, state largesse and low interest rates now replaced by fiscal and monetary tightening and recession across Western economies.

Ocado has been contacted for comment.

Lower inflation

Daniel Avigad, an equities manager with Lansdowne Partners in London, pitched a long position in Boliden, a Swedish mining company.

In a separate interview he said inflation has probably peaked. ‘(It) is going to most likely start to come down,’ he told CNBC.

‘There is an argument that if equity markets and bond markets rally very aggressively, it amounts to an easing of financial conditions too early in the cycle for what central banks want to see.’

That remains to be seen. But lower inflation will certainly be welcome to Western economies mired in double-digit price increases this year.

Will Wainewright is the founder of hedge funds and private markets blog Alternative Fund Insight

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