While prices in the United States may have grown, investors’ interest is still focused there. Indeed, many opportunities remain, justifying investment levels that are still high and generally fully in place. As a result of the 2013 rallies, the market is becoming less thematic as well: accordingly, hedge funds are no longer excessively concentrated in individual sectors. The most attractive stories in the current context are stocks related to shipping: aided by the considerably high barriers to entry and following the collapse of stock market valuations, these stocks are particularly interesting given the presence of barely 600 large food carriers in the entire world. Another sector offering an abundance of opportunities is energy, where the top opportunities seem to lie in trading in MLPs, vehicles that – until now – were neglected due to their unfavorable tax implications. However, certain MLPs are now larger than listed utilities.
On the other hand, caution surrounds certain themes that are beginning to reach maturity, like cement, which until now was held in portfolios after valuations fell in the wake of the real estate crisis, and insurance, one of the areas in which it was possible to find solid management teams and limited valuations up until a few months ago. Therefore, portfolios will increasingly shift on the basis of specific stories and less on sector-based themes.
As far as the credit market is concerned, positioning is generally cautious, with limited durations and gross levels under 100%, while the greatest opportunities are now to be found on the less liquid end of the spectrum. However, in the high-yield segment, smaller issues still provide some opportunities, offering returns that are now more attractive than indices.