NEW YORK (Reuters) – Deepak Narula of hedge fund firm Metacapital said he favored commercial mortgage-backed securities, while activist investor Jason Ader said the U.S. Federal Reserve is not likely to reduce its bond-buying next year.
Robert Hockett, a Fed fellow and Cornell University Law School professor, said U.S. income inequality has been the leading cause of financial market bubbles and crashes, while Pascal Blanque of Amundi said he is cautious toward emerging markets.
Those were some of the highlights from Day 3 of the Reuters Global Investment Outlook Summit, where investors and market specialists shared their best ideas on topics such as the impact of the Fed’s easy money policies and the best investment plays in 2014.
DEEPAK NARULA, founder of Metacapital
Narula said his firm has taken more risk in commercial mortgage-backed securities rather than residential mortgage-backed securities, which he said are priced too high.
“The easy money in subprime has been made,” Narula said.
Narula said the Fed’s program of buying $85 billion in Treasuries and agency mortgages monthly has ramped up prices on agency mortgage debt, creating opportunities for “short” bets against those securities.
He also said that outsized returns like the 41.25 percent gain in his Metacapital Mortgage Opportunities Fund in 2012 were not likely to be repeated. “Absent some large shock to the system, those kind of returns are really history.”
He said next year will be more challenging for investors than 2013 because “there’s much greater uncertainty around how the Fed will behave.”
JASON ADER, founder of Spring Owl Asset Management
Ader said the Fed is not likely to begin scaling back its bond-buying program next year, and that he personally bought the virtual currency bitcoin after the threat emerged that Cyprus could default on its debt.
“I don’t think you’ll see tapering next year,” Ader said.
Ader said he bought bitcoin when it was trading around $120, and that he still owns it. Bitcoin surged over 27 percent to a new high of $675 on Monday ahead of a U.S. government hearing on possible regulation of the digital currency.
Ader, who said he typically takes an activist role toward small- and mid-cap companies, said he seeks a “constructive” rather than a hostile approach.
“Proxy contests are expensive, time-consuming, and I view it as a tool of last resort,” he said. He said his favorite equity play was Strategic Hotels and Resorts Inc.
PASCAL BLANQUE, chief investment officer of Amundi
Blanque said he was reluctant to invest broadly in emerging markets given sluggish growth and weak corporate earnings in those economies.
“It’s too soon to come back aggressively into emerging equities,” Blanque said at the Reuters office in London. He said he was selective on emerging markets going into 2014.
“The contribution of emerging economies to global growth will stop next year. But … my message is don’t throw the baby out with the bathwater. You’ve got to discriminate and remap.”
ROBERT HOCKETT, Fed fellow and Cornell Law professor
Hockett said wealth inequality in the United States is the main culprit in the overpricing and crash of financial markets. “It renders financial bubbles and ensuing busts,” he said.
He also said he was skeptical of investor attempts to take the insurance businesses of mortgage financiers Fannie Mae and Freddie Mac private. “I’m definitely suspicious of the idea of just selling them to a hedge fund,” Hockett said.
DIDIER SAINT-GEORGES, member of the investment committee at Carmignac Gestion
Japanese stocks are appealing, with the market’s storming rally this year lagging corporate performance, Saint-Georges said at the Reuters office in London.
While Japanese equities have risen by around 45 percent this year, earnings have increased by about 60 percent, Saint-Georges said.
“If Abenomics continues to deliver … at these levels Japanese equities remain very attractive. We definitely want to keep a strong position there.”
CHRIS DELONG, chief investment officer of Taconic
DeLong said he was cautious on emerging markets, where he said investors were chasing yield.
“We’re not particularly bullish on emerging markets right now,” DeLong said. “In the last five years, the amount of EM corporate debt has more than doubled, probably more than 150 percent, but if you look at liquidity it hasn’t moved at all” he said.
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(For other news from Reuters Global Investment Outlook Summit, click here)
(Reporting by Sam Forgione, Luciana Lopez, Jonathan Stempel, Natsuko Waki and Carolyn Cohn– Editing by Leslie Adler)
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