Odey Asset Management head Crispin Odey thinks 2014 will be a good year for hedge funds, but that everyone else may have a rough time getting decent returns, according to a letter to hedge fund investors, which was reviewed by ValueWalk.
“A five year old bull market should give short sellers many opportunities as companies either fail to execute properly or it becomes apparent that they have a much weakened competitive position,” writes Crispin Odey.
He argues that the first wave of housing demand was driven by low cost and cheap financing, but that the housing sector can’t be sustained with cheap money forever. “Enduring demand will be driven by people feeling that employment prospects are sufficiently buoyant and wage rises reassuringly likely that it is worthwhile creating new families (and borrowing the money to buy the house),” he writes.
Odey: 2014 is more for hedge funds than long equity funds
With the US housing sector at 10x EV/EBIT, it seems that investors aren’t convinced that’s going to happen this year. This lack of confidence in the job market and in wage increases could resonate to other sectors as consumer demand flags (and could explain the weak holiday season we have just seen from many retailers). Accommodative monetary policy has primed the pump for growth, but that still has to translate into increased demand for companies to hit bullish price targets.
“If 2013 was a dream of a year, will 2014 be a nightmare? Given how enthusiastic the forecasters are it has the chance to be,” writes Odey. “A year more for the hedge funds than the long equity funds, I suspect.”
OEI MAC beats the market in December
OEI MAC beat the market last month, gaining 3% compared to 2.2% for the MSCI Daily TR Net Europe, but it is still behind the market for the quarter following a couple of difficult months. This performance was driven by 4.1% gains from the fund’s long equity book, partially offset by 1.1% losses from the short book. OEI MAC gained 0.4% from its short position on government bonds, and 0.5% from forex.
The fund’s biggest gains came from D.R. Horton, Inc. (NYSE:DHI), Sky Deutschland AG (FRA:SKYD) (ETR:SKYD), The Ryland Group, Inc. (NYSE:RYL), and Circle Holdings while it lost money due to long positions on Delta Air Lines, Inc. (NYSE:DAL), Sports Direct International Plc (LON:SPD) and Ford Motor Company (NYSE:F) While its short positions on Apr Energy PLC (LON:APR) and Kazakhmys plc (LON:KAZ) were both winners, these gains were overshadowed by losses in Persimmon, The Sage Group plc (LON:SGE) and Aberdeen Asset Management.
