As Big Tech reels from the blow of higher interest rates and slowing growth, one top-performing hedge fund manager is going against the tide to bet on the sinking shares of Facebook-owner Meta Platforms.
Expensive Silicon Valley tech would not normally feature on the shopping list for the Liontrust GF Tortoise Fund, which its manager Tom Morris describes as a “value-focused hedge fund”, seeking out shares it deems to be cheap.
That strategy enabled London-based Tortoise to beat 99 per cent of its long-short equity fund peers this year, with returns of about 22 per cent, according to data, versus a 17 per cent loss for the MSCI All-Country World Index and a 12 per cent fall for the Bloomberg Equity Long/Short Hedge Fund Index. Now though, Mr Morris reckons it’s time to be “sensibly contrarian”.
“We are value managers but parts of tech are actually value stocks now,” Mr Morris, who co-manages the $600 million fund with Matthew Smith, said.
Tortoise ran “relatively large” short positions on the S&P 500 and the Nasdaq early in the year, as well as on some US tech stocks, and had long positions in the likes of staples and health care, before switching the portfolio back towards neutral starting from April, Mr Morris said.
More recently, the managers have moved to a “cautiously optimistic stance”, he added.
Big deratings have left some names “basically in the doghouse”, trading at multiples of 10 to 11 times earnings, levels unseen for the past five or 10 years, he said, in a reference to the continuing tech rout that has wiped trillions of dollars off the value of the vaunted sector.
That’s the case with Meta, in which Tortoise took a long position last month. Following a hefty price plunge — almost 70 per cent year-to-date — Meta trades at about 11 times 2023 earnings, half the price-to-earnings levels seen a year ago, data shows.
Meta and its tech peers have failed to really benefit from recent signs that central banks may slow their rate-hiking pace, but Mr Morris said the company’s high net cash position, growing user numbers and cost-cutting possibilities made it a good buy for the longer-term.
His other long tech positions include IBM, alongside chip makers Micron Technology and Intel, according to filings from the end of October.
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The fund also recently closed short positions in two other semiconductor firms Nvidia and Advanced Micro Devices, as well as crypto exchange Coinbase Global, trades that Morris said had “worked out well”.
The fund’s outperformance this year contrasts starkly with the bulk of long-short equity hedge funds, with many sitting on losses and facing client outflows.
Mr Morris attributes his successful run to a relatively simple strategy. The fund holds about 60 positions in total, and unlike many hedge fund peers, it does not have high leverage and avoids illiquid positions.
“We’ve got a long book of companies who we think are too cheap and a short book of companies who we think are too expensive, we occasionally do a bit of FX hedging and that’s it, there’s nothing particularly fancy going on, such as high frequency or derivatives,” he said.
Mr Morris sees opportunities for additional long positions even though the MSCI All-Country World index has recouped some losses of late, with gains of about 13 per cent this quarter.
The fund retains positions in energy, another flagship value industry that is this year’s best-performing equity subgroup. Holdings include TotalEnergies and Shell.
In addition, Tortoise has exposure to European banking shares, with Mr Morris being “quite enthusiastic” about the sector, citing rising profitability on higher rates and improving financial health.
“Banks are fundamentally different beasts now to what they were 10 or 12 years ago,” Mr Morris said.
