(Bloomberg) — Assets that have outperformed in the past decade are likely to see their fortunes fade as previous laggards take over, according to Adam Levinson, founder and chief investment officer at Graticule Asset Management Asia.
There’s “tremendous value” in emerging markets and value stocks, some of which have been “left for dead” over the past 10 years, Levinson said in an interview on Bloomberg Television. Graticule has been taking bearish bets on developed-market bonds that have short maturities left and is long on such notes in China, he said.
“Our portfolio is basically the anti-portfolio of what was in the last 10 years,” Levinson said. “All of the flows have been into the U.S. at the expense of the rest of the world, and essentially into U.S. tech — that’s what is obviously vulnerable,” as the environment changes to a higher-inflation regime.
Levinson said he would bet against some equities in the U.S. through short positions, and invest in value markets such as Japan or Europe as well as in segments of emerging markets.
“Everywhere from Brazil, to Kazakhstan to Greece, you are finding domestic franchises that are so cheap, that you can’t manufacture them in the private equity market at anything close to where they trade,” he said. Value stocks in value markets are so cheap because they “have been left for dead essentially over the last 10 years.”
The big U.S. tech companies have outshined the rest of the market over the past decade, with the Nasdaq 100 gaining 477% compared with the S&P 500’s 235% increase and 124% for the MSCI all-country index.
Those returns came in an era with low inflation, punctuated recently by a Covid-19 pandemic that spurred business models from the likes of Amazon.com Inc. and Alphabet inc. However, more and more strategists see an end to the gains as valuations become loftier and inflation accelerates.
READ: A Boon for Crypto Depends on Growth Stocks’ Fate, Graticule Says
One trade Graticule is involved in is Chinese oil field and services companies, which “are very cheap” because the strategic rivalry between China and the U.S. will prevent American companies from ever getting fresh drilling contracts from Beijing, he said.
While investors should have China as part of their emerging-markets basket, they should not be concentrated there because problems related to credit are far from resolved, he said.
The fund manager said has been very encouraged by the currency market’s performance over the past day, as even with the sharp move in rates, the dollar hasn’t responded much.
“That’s again a reflection of this shift in flows from the embedded portfolio in U.S. growth,” he said. As capital exporting countries such as South Korea, Thailand and Europe get some of the capital flows back, their currencies will appreciate, he said.
Levinson’s firm oversees a portfolio of about $3 billion. He led a team of people that spun out of Fortress Investment Group LLC in 2015. Fortress Asia Macro Fund, which began trading in 2011, was the predecessor to Graticule.
Other points Levinson made in the interview:
- There’s an argument to be made that we’re in a long-term inflationary paradigm; the move toward green energy, plus demographics and other factors lead to a higher inflationary floor.
- It makes sense to be short the dollar.
- The decision to allocate to crypto has been made by many traditional institutions, but many haven’t yet implemented the decision or have been slow to do so; it may take until growth stocks stabilize before big investors do jump in more.
(Updates with comments about emerging markets and currencies from fifth paragraph.)
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