RWC’s Gambhir in short book reshuffle
RWC’s Ajay Gambhir is revising his short positions on stocks after the European Central Bank’s (ECB) latest stimulus package, on the view companies will continue to face challenging economic conditions.
The manager of the group’s $207.3m (£127.6m) Luxembourg-domiciled Europe Absolute Alpha fund said he had increased the number of short positions in the industrials sector, which is typically more economically sensitive and focused on emerging markets.
He has also looked at shorting defensive stocks, whose value has been boosted by the pessimism that reigned in Europe prior to the ECB announcement.
“From a bottom-up perspective more and more companies are going to battle against economic headwinds,” he said.
“A number of companies forecasted economic growth would pick up, but this is looking highly unlikely, so we are looking for companies where analysts have been too optimistic.
“Analysts have been so focused on Europe that they have been slow to recognise there are issues with some of the other growth engines of the world, such as stagflation in India and slowing growth in China.”
Mr Gambhir added because analysts had been slow to recognise the impact of these issues on European companies, it had created shorting opportunities.
Elsewhere, the manager said the latest stimulus package from the ECB and the decision by the German Constitutional Court to ratify the legality of the longer-term bailout fund, the European Stability Mechanism (ESM) had been more broadly positive for markets.
However, the manager said the “froth” created by the extra stimulus would produce some shorting opportunities in defensive sectors.
“Little by little each of these milestones had worked towards reducing the risk of one country or more leaving the eurozone.
“The tail risks have been key to how the European market has been behaving in the past year and recent events show things are moving in the right direction,” he said.
“We had nudged up the net exposure via the long book earlier this month as we could see the tail risks were diminishing but now we feel it is time to take up the shorts and therefore increase the gross exposure in the next few months.
“Some defensive stocks have now become good shorts because they were driven up to premium valuations that were not really warranted.”
RWC took steps to deter inflows into Mr Gambhir’s fund in 2011 but re-opened the fund to new investment last month.