Hugh Hendry, the fund manager at Eclectica asset management, in his first quarter letter highlighted his funds 3.5 percent net return was contributed by equities and FX.
The prominent hedge fund manager attributed the funds performance to gains from long positions in consumer sales and Japanese stocks besides gains from short positions in industrial commodity related stocks.
Hugh Hendry is known for his commentary on the financial crisis and the bubble in China.
For equities, Hendry’s fund focused on long cash generative businesses with the strongest balance sheets, not affected by economic sensitivity. This view is corroborated by good performance posted by S&P consumer staples index. The consumer stocks have out-performed by rallying 13.8 percent.
Hugh Hendry reasons with the risks surrounding the global economy and fearful of financial repression, for the conservative investor the safest and least volatile bet would be the most liquid consumer non-durable discretionary blue chips on Wall Street. These stocks also provide 3 percent dividend income.
Hugh Hendry on US Economy
Hendry feels the likely durability of the U.S. economy would impact the U.S. dollar. In this letter, he observes that with wages coming down, the shale gas boom contributing to cheaper energy, the U.S. is set to reclaim its market share within the global economy. He feels the sight of the stock market and dollar rising in tandem looks more like the regime that accompanied the last two dollar bull markets of 1980-85 and 1995-2001.
Since the end of 2012, Hendry’s fund has been long on Japanese equities. Their view has been buttressed with the drastic regime shift in Japan resulting in 20 percent depreciation of the yen. This augurs bullishness for Japanese assets and hence his fund started buying TOPIX index futures and shares in Japanese property companies.
Hugh Hendry On Japan
Hugh Hendry however, cautions that Japan’s monetary pivot towards QE will not create economic growth out of nothing. On the contrary, it would redistribute global GDP in a manner that favors Japan against the rest of the world. In 2008, the firm purchased a ten year 40,000 Nikkei one touch call option.
Hendry’s fund also reasoned that the combination of richer rates and weaker economic data justified a much greater and wider fixed income exposure. Hence since the end of the quarter, the hedge fund has initiated positions split geographically across Australia, Korea, Europe, Switzerland and the U.S.
In his concluding note to the investors, the CIO notes the key elements of the fund’s portfolio are long the Tokyo stocks, long low variance U.S. equities, long the U.S. dollar and receiving fixed income at the short end sovereign curves.
The U.K-based Eclectica asset management was established in 2005 by Hugh Hendry and currently has over US $ 700 million assets under management.