Amid the bombast of DoubleLine Capital chief executive Jeffrey Gundlach’s entry into the Twittersphere, upbraiding journalists in the manner of, ahem, another famous tweeter, it’s worth focusing on the investment call that sparked the row.
Gundlach’s claims of ‘fake news’, his dismissal of coverage as ‘sad,’ and his chiding journalists over the need to ‘fact check’ sprang out of his address at the Sohn investment conference.The star bond manager took issue with claims he had painted an ‘ugly picture’ for US stocks, implying the press had overlooked the other side of the pair trade he had revealed.
Gundlach announced he had a pair trade betting on further gains for emerging markets versus US stocks, by holding a long position in the iShares MSCI Emerging Markets exchange-traded fund (ETF) and shorting the SPDR S&P 500 ETF.
It’s certainly a trade that has momentum on its side. Since the beginning of 2016, when emerging markets shook off the fears that had been weighing them down for the previous three years, they have been rallying hard, while the Dow and S&P 500 manage to dull the excitement of a flurry of all-time highs by slowly grinding out those milestones.
Portfolio managers focused on the hottest region of the moment offer investors a host of different routes to tapping into the growth of developing economies. That’s perhaps no surprise, given they are picking from a market whose benchmark features 830 stocks from 24 countries.
Big bets on technology have helped to power Jonas M. Krumplys to both a Citywire AAA rating and a 20.8% return over three years that places his Ivy Emerging Markets Equity fund sixth of 182 funds in the sector over that period.
He holds over a third of his near-$1 billion fund in technology stocks, well ahead of the index weighting of around a quarter. As with the index, Samsung is the top holding, but Krumplys is overweight the electronics group, whose shares have continued to rally despite the negative publicity surrounding the exploding Galaxy Note 7.
Chinese e-commerce giant Alibaba is his third biggest holding, while other big tech bets include Taiwanese and Chinese optical lens companies Largan Precision and Sunny Optical technology, and Russian search engine Yandex.
Tech stocks helped the fund beat the benchmark’s double-digit returns in the first quarter, and Krumplys believes they can continue leading an emerging market rally.
‘We believe emerging market valuations remain attractive as earnings revisions continue to be revised upwards across many regions and sectors,’ he said in his latest update. ‘We continue to be overweight new economy stocks, such as those related to the internet, advanced automotive systems, biosimilar pharmaceuticals and other technology.’
Small but mighty
The pair run the $4.8 million fund on a subadvised basis from Boston-based boutique Trivalent Investments, focusing on the smaller companies in the developing world.
But there’s nothing small about the returns they have delivered. Up 18.9% over three years, it places an impressive seventh of 182 funds, only just pipped by Ivy.
The pair are confident about the outlook ahead, detailing several potential catalysts, such as a Chinese manufacturing rebound and a demonetization project in India that has not delivered on the worst fears.