Client Talking Points
There were some epic shorts in 2013 (Gold and Bonds) - just not the ones consensus pundits called for. If only the 2013 perma bears could figure out what happened! Bottom line is you were either long growth (US stocks) and short fear (Gold, Bonds, VIX) or you were not. Meanwhile, the S&P 500 is notching a new all-time high today at 1838. As we like to say here at Hedgeye, all-time is a long time.
We're going to continue to hammer on the importance of getting style factors and sector allocations correct in 2014. Simply avoiding the most underperforming sectors would have been a boon for anyone’s portfolio in 2013. Of the 9 major U.S. equity stock market sectors, the outperformance between the top performing sector of Consumer Staples and the worst performing Sector of Utilities was more than 2,000 basis points! Simply getting the allocation to those two sectors correctly weighted, would have made any equity manager’s year.
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Top Long Ideas
Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged. If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper.
WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.
Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks. T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.
Three for the Road
QUOTE OF THE DAY
"Playing it safe is the riskiest choice we can ever make."
-Sarah Ban Breathnach
STAT OF THE DAY
The top five performing global equity markets for the year were as follows:
- Venezuela +478%
- Dubai +102%
- Argentina +88%
- Abu Dhabi +58%
- Japan +56%