The notoriously private hedge fund industry had a rare moment in the spotlight as the year drew to a close, with top insiders giving a glimpse into their best long or short bet tips for the next 12 months.
Leading managers from the UK and US, including renowned short-seller Carson Block, revealed their 2024 stock picks to an investor audience at the Sohn London charity event, an investment ideas conference in support of paediatric cancer research.
Here are some of what top hedgies are betting on in 2024 – and a look back at how successful last year’s predictions proved.
Experts’ top hedge fund tips
A pair of venerable British blue chips, one a bank, the other a telecoms company, were pitched at Sohn for different reasons.
Michela Ferrulli, partner and head of wealth management at Calibrate Partners in London, pitched a long call in Lloyds Banking Group. She described the lender, which owns Bank of Scotland, Halifax and other groups, as ‘a proxy for the UK economy’.
She believes the first half of 2024 will be all about rate cuts in Europe, and Lloyds could be a major beneficiary of monetary loosening and an improved economic outlook, which she foresees next year.
The bank was part-nationalised after the financial crisis but has been fully back in private hands since 2017. It is set for a financial boost after the Barclay family unexpectedlyy repaid a more than £1.1bn debt for the Telegraph newspaper, helped by a consortium backed by Abu Dhabi.
It was a different story for BT, the telecoms group identified by Chris Dale, the founder of Kintbury Capital, a $1.4bn London manager, as a major short call.
He thinks BT shares will decline by as much as 45%. Ominously for BT, he has delivered gains in each of the seven years since starting Kintbury and made more alpha from short positions than long.
Why so negative on BT? Dale says cashflow pressure, a big pension deficit and increased competition from challenger broadband companies has put the company ‘in an unsustainable financial situation’.
A new CEO, Allison Kirkby, will start in January, but ‘she can’t really do much about the pension deficit,’ says Dale.
‘If there is one thing you take away from this as a BT customer, you need to switch.’
Rashmi Garg, senior long/short portfolio manager with Al Dhabi Capital in the UAE, which manages more than $650m, tipped Moncler, the Swiss luxury brand, to beat expectations and thrive in 2024.
She admitted it may seem counterintuitive to pitch a luxury stock at this point in time given recent challenges and a muted economic outlook, but had confidence in the performance of the brand in quarters ahead.
Moncler could be boosted by Chinese tourists returning to Europe in increasing numbers, she said. Flights from China are still only at 60% of pre-Covid level, ‘so there is still room for an increase here and Moncler should benefit,’ says Garg.
Shares are down more than 20% since the firm announced its third quarter results, but Garg highlighted product diversification as another key driver of growth and saw a 43% upside to the share price.
Blackstone Mortgage Trust (BMT): short
Carson Block was the headline act and finished the day’s pitches with a short call in Blackstone Mortgage Trust, a real estate investment trust.
‘Interest rate swaps and manipulated risk ratings/loss provisions have obscured serious deterioration in BMT’s loan book,’ he said.
The founder of US-based hedge fund Muddy Waters said any rate cuts next year would be too little, too late for many BMT borrowers.
‘Because these are interest-only loans, this model relies on borrowers being able to refinance to repay the loans,’ he added.
‘We believe this self-interested and misleading report is designed solely for the purpose of negatively impacting BMT’s share price for the short seller’s own benefit,’ a Blackstone spokesperson responded via Bloomberg.
How successful were last year’s hedge fund tips?
How did the key calls from Sohn London 2022 fare?
- Chris Dale, who targeted BT this year, had success with a short call on UK online grocer Ocado in 2022, predicting a 50% downside in the share price as its Covid-era progress wore off. BT should be concerned: Ocado shares virtually halved in the six months after the event (Success rating: 9/10).
- Daniel Avigad, an equities manager with Lansdowne Partners in London, pitched a long position in Boliden, a Swedish mining company. Timing is everything: they rose healthily in Q1 this year but over the past 12 months are significantly down (Success rating: 3/10).
- Abhishek Agrawal, an event-driven manager at Polygon Global Partners, tipped games-based learning app Kahoot! that allows users to create and play games. Shares have almost doubled in the past 12 months (Success rating: 9/10).
Will Wainewright is the founding editor of Alternative Fund Insight.