Hedge Fund Managers Pzena, Silverman Question Stock Bubbles

The parade of major hedge fund managers warning of a bubble continues.  At yesterday’s Portfolios with Purpose Awards Night in New York, Rich Pzena of Pzena Investments and Doug Silverman of Senator Investment Corp joined Prem Watsa and Seth Klarman who, as noted in previous ValueWalk articles, are questioning stock market valuations.

Hedge Fund Managers Pzena, Silverman Question Stock Bubbles

“You can only call it a bubble. But I have not guessed when it will end,” Silverman, with $6.7 billion under management, was quoted in a report as saying. “The high probability is when you look back on this period five years from now, you’ll say some of these companies grew into their (earnings) multiples … but I think biotech and other areas in tech have seen multiple expansions beyond what we can justify beyond any kind of reasonable cash flow expectations.”

Pzena: “I think we are in a bubble”

“I think we are in a bubble,” Pzena, with $23.7 billion under management, was quoted as saying in the CNBC report. “I don’t know if I would say it’s broadly in tech stocks. I think it’s in certain stocks. But the hype feels like we’re in another Internet-type bubble like 1999.”

Sell in May and go away… for three years

Is the market predictable?  “What is predictable is that most of the companies won’t grow into their multiples,” Pzena said, leaving investors to ask the question: how should I manage such an environment?  “Shorting (stocks) with guts and not looking at the portfolio for three years is probably a smart thing to do,” said Pzena, which is unusual as he is a long only manager who doesn’t engage in short selling tactics.

“The last thing we want to be is the proverbial investor being carried out on the stretcher,” James Dinan, with $21 billion under management at York Capital Management, was quoted as saying, noting he wasn’t buying hyper growth stocks but wasn’t shorting them either.  The report noted that despite economic uncertainty, most of York’s exposure was in the US. “I personally don’t see equity (price) expansions in the U.S. equity markets being more likely than not.  The U.S. is not doing, in my view, as well as people are told. Everyone keeps blaming the weather, the weather, the weather. At some point you have to stop blaming the weather.”

Emerging markets anyone?

While Pzena said he prefers emerging market stocks that benefit from a rising middle class, Dinan had different thoughts. “The emerging market world is really going to take a big hit,” he was quoted as saying. “We’re going to continue to see a lot more turmoil … and that’s going to keep investors on the edge.”  For his part, Silverman avoids emerging markets, calling them “really tricky,” he said.

Portfolios with Purpose is a nonprofit founded by former hedge fund marketer Stacey Asher in 2011.  Winners in the portfolio challenge deliver proceeds to their favorite charities.



About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com