Odey’s Allegra European Fund has come out of the gates strong in 2014, up 9.6 percent year to date, according to an investor letter reviewed by ValueWalk.

Odey allocation attribution

Crispin Odey’s fund, which is changing its investment minimum from €250,000 to £1000, attributed the positive performance primarily due to the retail sector, up +3.8 percent, and transports, up +1.3%.

The individual best performers identified in the report were Sports Direct International Plc (LON:SPD) (+1.0%) and Ryanair Holdings plc (NASDAQ:RYAAY) (+0.7%). The worst performers were Rolls-Royce Holding PLC (LON:RR) (-0.4%) and Royal KPN NV (-0.2%).

Odey’s long and short EU positions

Odey currency exposure top 10 holdings

Odey’s primary long equity exposure, according to the investor letter, includes Sports Direct International Plc(LON:SPD), International Consolidated Airlines Grp (LON:IAG), Ocado Group PLC (LON:OCDO), Carphone Warehouse Group PLC (LON:CPW), Howden Joinery Group Plc (LON:HWDN), YOOX SpA (BIT:YOOX), Ryanair Holdings plc (NASDAQ:RYAAY), Kingfisher, Barratt Developments Plc (LON:BDEV) and easyJet plc (LON:EZJ). Its primary currency exposure is the British Pound and the Euro.

Odey

Odey currently has a $1.3 billion short position in Europe, based on information in the Novus European Short Observer. Its top shorts include Peugeot SA (EPA:UG), Aberdeen Asset Management plc (LON:ADN), Ashmore Group plc (LON:ASHM), Intu Properties PLC (LON:INTU), Aggreko plc (LON:AGK), Metso, J. Sainsbury and Admiral Group plc (LON:ADM) among others.

Three primary concerns

In Odey’s Odyssey Fund January market commentary, the fund noted primary macro concerns. 

The first concern was interest rates in emerging markets. “The concern we share is the simple arithmetic of higher real interest rates in the EM current account deficit (CAD) economies,” the letter said. “After extensive pressures on their currencies, these economies are gradually tightening monetary policy in the usual effort to offset secondary, imported inflationary pressures.”

The second concern, about which they are “ambivalent,” is the direction of the Chinese economy. “The worries revolve around the existing build-up of debt and the government’s attempts to both de-leverage the system and enforce a more efficient and rational allocation of credit,” the letter said, then noted the risks are to the downside in China. “However, in a partially government controlled market, it is entirely possible that a more discriminatory approach will emerge, with credit continuing to flow to those areas of the economy – railroads and healthcare are two examples – where legitimate credit demands exist. So the outcome for growth from the Chinese attempts to increase capital allocation efficiency is by no means certain, although one should acknowledge that the risks are to the downside.”

The third area of concern outlined in the January quarterly letter was “the notion of a spontaneous US slowdown,” which the fund wholly rejects: “The concern has been fostered by a scattering of isolated weak data points in December and January. Despite the glaringly obvious point that the weak data reflects some extreme winter storms (if you cannot leave the house without risking hypothermia, how do you get to work or buy a new car?), economists – or at least those labouring on Wall Street – have been strangely reluctant to ascribe the inconsistencies in the data to the weather.”  It is interesting to note that nearly three months after this commentary was written, today the US jobs number showed an increase of 175,000 jobs, higher than expected.

“Looking forward, we see no reason to doubt our base case of a moderate strengthening in real consumption and a moderate strengthening in capex,” the letter said.