Analysis by Janus Henderson of which positions have helped this alternative management strategy and which have punished them.
While the long-term outlook for markets remains uncertain and a longer-term constructive case will require clarity on inflation and the situation in Ukraine, in the very near term Janus Henderson, manager of Absolute Returns, a fund rating fund people In 2022, they are more optimistic about the direction of risk assets.
“Economic indicators continue to suggest a cooling of core inflation, which should set the stage for some easing in central bank rhetoric, with wage increases also easing. Equity markets also look technically oversold. As the risks of rising interest rates and recession outweigh the discount in valuations of companies”, he remarked. FundsPeople Luke Newman, Strategy Manager.
The fund is down -5% for the year, according to data from Morningstar. Typically at least 60% of the fund will have long and short exposure (combined) to companies of any size, in any sector, in the UK. “Companies may be incorporated or headquartered in the UK, have significant UK revenue or be listed on the London Stock Exchange. Up to 40% of long and short term exposure may correspond to non-UK companies” , they tell.
positions reducing profitability
Its long position in the financials sector and its exposure to the national market in REITs impacted sales the most. “Taylor Wimpy fell out with other UK homebuilders as gilt sales exacerbated existing mortgage financing risks in the sector.” However, short positions in other manufacturers offset the move given the overall net position in the sector.
“Insurer Legal & General pulled back following a fall in gilt prices following difficulties in the UK pension market, which led to demand for more collateral, which in turn pushed prices down further. Prices of liquid UK debt and equity instruments .. As rising interest rates should support the insurers’ solvency ratios and business models (and thus the safety of their high and growing dividend yields), we add positions based on weakness,” he disclosed.
Just like that, Increasing pressure on banks’ interest margins prompted them to reposition strategic long positions in UK-listed banks, NatWest and Lloyds. “Long positions in construction materials supplier CRH also contributed to the downside during the month due to concerns about the US housing market and the detrimental impact of a stronger dollar on its production costs. However, due to the high government spending on infrastructure and its relative discount against its peers, we have considered a more attractive price for the position.
Short positions and the dollar kept the portfolio safe
The smaller portfolio provided some protection against broad market downturns and they took profits on various hedges of advanced market indices. “Currency volatility provided some strategic long trading opportunities for UK and European listed companies with high dollar profits.”
However, it bears in mind that any twist in the narrative by central banks – particularly by the US Federal Reserve (Fed) – could reverse this dynamic and, with it, corporate share prices. They are quoted in sterling and the euro, which are strongly influenced by the strength of the dollar in relative terms. “This could focus investor attention on the lower absolute valuations of UK and European domestic companies,” he concluded.