'I can't look at myself in the mirror': Hendry reveals why he has turned bullish

  • Tweet  
  • LinkedIn  
  • Facebook  
  • Google plus  
  • Send to Kindle
  • Send to  
hendry-hugh

Eclectica hedge fund manager Hugh Hendry has said he has been forced to leave his bearish outlook behind as he faces up to a market “which only makes sense through the prism of trends”.

Speaking at Harrington Cooper's 2013 conference this morning, Hendry (pictured) said he is no longer fighting the "two-way feedback loop" which is continuing to boost risk assets.

That centres on the currency war being played out between the US and China, in which US QE prompts dollar-denominated investment to head to China, and China fights the resulting upwards pressure on its currency by manufacturing an investment boom.

Related articles

Hendry said this creates a "global supply glut", leading to falling US inflation expectations (as this supply far outweights US domestic demand) - which in turn prompts the Federal Reserve to loosen policy once again.

"I can no longer say I am bearish. When markets become parabolic, the people who exist within them are trend followers, because the guys who are qualitative have got taken out," Hendry said.

"I have been prepared to underperform for the fun of being proved right when markets crash. But that could be in three-and-a-half-years' time."

"I cannot look at myself in the mirror; everything I have believed in I have had to reject. This environment only makes sense through the prism of trends."

Opportunities

Hendry said he is looking for ‘auto-correlations' that benefit from this feedback loop.

Though he first began turning more positive on the likes of US and Japanese equities last year, Hendry suggested this morning the current environment created more counterintuitive opportunities.

"This applies to European banks, Greek equities, Spanish equities. You have got to be in things that are trending," he said.

The manager's Eclectica Absolute Macro fund had a 64% value at risk equity allocation in September, up from 45% in August, with December 2013 Japanese TOPIX index futures his biggest single holding on a VaR basis.

Addressing attendees this morning, Hendry said his comments would take on a "confessional" tone, and admitted his performance over the past year had been "at best, mediocre".

Hendry's CF Eclectica Absolute Macro fund has lost 2.6% in the nine months to 30 September, according to the firm.

Risks to his reputation

The manager acknowledged his changing stance may be viewed by some investors as a 'top of the market' signal, but said he is not concerned by the prospect of a crash.

"I may be providing a public utility here, as the last bear to capitulate. You are well within your rights to say ‘sell'. The S&P 500 is up 30% over the past year: I wish I had thought this last year."

"Crashing is the least of my concerns. I can deal with that, but I cannot risk my reputation because we are in this virtuous loop where the market is trending."

Hendry said he retains a degree of safety within his portfolio by hedging out his bullishness through trades such as high beta US stocks versus emerging market stocks.

"There is the constant danger that Western bankers turn bullish again, start leveraging up, and we see money go into productive assets, not financial assets," he said.

"If that happens and the Fed does tighten policy [as a result], it will just be really bad news for emerging markets."

  • Tweet  
  • LinkedIn  
  • Facebook  
  • Google plus  
  • Send to Kindle
  • Send to  
Visitor comments
Add comments
blog comments powered by Disqus
More on Economics / Markets
Business Secretary Vince Cable opens TEG energy from waste plant in Dagenham

Cable bows to pressure over Royal Mail IPO probe

Business Secretary Vince Cable has bowed to mounting pressure for an inquiry into the privatisation of the Royal Mail, ahead of a critical report due on Friday.

nemat-shafik

New BoE deputy governor hints at interest rate rise

The Bank of England’s new deputy governor, Minouche Shafik, has hinted to MPs that interest rates could be about to go up, the FT reports.

federal reserve

Fed sets October date for end of QE

The US Federal Reserve has said it will end its purchases of government bonds in October, bringing to a close the quantitative easing experiment.

protection

Correction protection: The sectors that shine when markets fall

Positive economic news in the US and the continuing recovery in the UK have pushed equity valuations near to peak levels. So where can investors turn for protection in case markets fall from here?

Events
event logo

Income Breakfast Briefing 2014

Location: London, UK

Investment Week is delighted to announce the Income Breakfast Briefing on Tuesday 9th September at The Brewery in London.

event logo

Fund Management Summit 2014

Location: London, UK

Investment Week is pleased to annouce the launch of our second annual Fund Management Summit which will bring together the top UK and European investment buyers and advisers. The Summit seeks to provide in-depth and cutting edge market knowledge alongside invaluable working opportunities.

event logo

Fund Services Awards 2014

Location: London, UK

Investment Week is pleased to announce the Fund Services Awards 2014, taking place on Tuesday 23rd September after day one of the Fund Management Summit.