In January Balyasny Asset Management Managing Partner and Chief Investment Officer Dmitry Balyasny looked at the market with a degree of concern. Instructing his portfolio managers to “remain nimble and focus on high beta momentum shorts if the market rolls over,” he noted a prime broker report that showed net long / short positioning among hedge funds near 74% — an all time high in long exposure – and a high correlation to the S&P at 0.9. His portfolio managers positioned their holdings to manage the downturn, to various degrees, and as of the end of March was up 5.87% while the stock market in general was up just over 1%. In a conference call and investor letter, Balyasny also noted a potential backlash against activist investor strategies, had comments about high frequency trading and had advice regarding portfolio management in an increasingly slippery stock market environment.
Balyasny: Market looks like a tech bubble
Balyasny noted in the investor conference call that this market looks like a tech bubble, but nothing like 2001 or 2008. “A new technology television program recently launched called Silicon Valley,” he noted, “just in time for the top in the market in these stocks.”
“The market is not like 2013,” he observed. “Something significant has changed.” As such the fund is raising the bar on new ideas and closely watching correlations across sectors while not reducing exposures to extremes.
Small negatives: HFT, activist hedge fund investing
Attempting to put a tag on what has changed is like herding cats at times, he considers a cause for the shift in the US Federal Reserve more hawkish and the guidance had become additionally vague. Another issue he said dampened the positive party for stocks was the Michael Lewis book Flash Boys about high frequency trading. “Calling the market ‘rigged’ when Internet stocks were getting hammered didn’t help confidence and contributed to the de-risking.” Nothing HFT was one of the “small negatives” contributing to the market decline, he observed the common professional perception that HFT profitability had peaked five years ago and competition has come into the arbitrage market. In other words he believes much ado about nothing.
Weighing in on the topics of the day, Balyasny said he sees a backlash to hedge fund activism, which he also said was one of the “small negatives” that contributed to the recent tech market slide. Spotlighting a letter BlackRock, Inc. (NYSE:BLK) CEO Larry Fink wrote to Fortune 500 CEOs saying that they should stand up for long term value creation.
One word: Cement
Looking forward, Balyasny highlights his best idea as he ends the call: HeidelbergCement AG (ETR:HEI) (OTCMKTS:HDELY). Balyasny thinks the stock could rise from $62 to $100 per share with a 10% downside risk. “The Cement industry is the opposite of the Interent,” he said, noting the constraints on capacity due to significant regulatory costs of building new plants and the fact cement is overtaking asphalt as the leading material used in road construction. “The Interent has an unlimited capacity, while cement has limited capacity in increasing demand.”
