The global equity long-short manager has built up one of its largest short exposures on record, saying the equity markets are littered with opportunities.
Equity markets are likely to throw up relentless short-selling opportunities as challenging economic and political conditions create market volatility and price pressures.
“While multiples have compressed across various sectors, we are yet to see many companies deliver earnings downgrades,” the investment manager said in the fund’s latest letter to shareholders. , but remains well above the Federal Reserve’s target range, leading markets to bet the central bank will continue to push through interest rate increases.VGI’s performance suffered in financial 2022, delivering its largest annual drop since inception to a loss of 27.3 per cent.
“We viewed [them] as having broken business models and/or trading on egregious valuations, with the thesis being that valuations for these businesses had room to compress substantially in a higher interest rate environment,” the investment manager said in its latest commentary.Shorts in US housing, home building and construction also contributed to returns, establishing positions in businesses exposed to a downturn in residential property investment like materials manufacturers.
The fund also has substantial positions in Cartier parent Richemont, global enterprise technology giant SAP and French lottery operator Francaise des Jeux.“We strongly believe that structural growth is going to become increasingly scarce and hence remain focused on owning businesses where we have high confidence in their competitive moat, industry structure, addressable opportunity and pathway for multi-year growth in free cashflow,” VG1 said.
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