Even the most vocal supporters of passive management and indexing have to admit that certain investor track records are far too stellar to attribute entirely to luck. While I’ve frequently disparaged the concept of active investing, I’m still eager to hear what trends legendary investors are following. The Wall Street Journal’s Gregory Zuckerman recently compiled some thoughts from George Soros, John Paulson, and others on the current economic environment. So what are these experts betting on? Some of the answers might surprise you:
- Soros, known for his controversial currency attacks, calls the current environment a “trading market,” advising investors to take profits when prices rise. Although he is less involved in the day-to-day management of his $24 billion fund, Soros does have some investment ideas, and is bullish on most of the BRIC countries, particularly China. “China is the major beneficiary of the collapse of the financial system. For them it was an external shock,” says Soros. “Because China is in a position to stimulate its economy, it will be a motor for the global economy.”
- John Paulson, who made huge profits in 2007 and 2008 by betting on subprime mortgages, had nearly two-thirds of his hedge fund’s $30 billion in cash at the beginning of 2009 according to some investors. But Paulson has been actively looking for investment opportunities, and he believes he’s found a couple in mortgage-backed securities and financial firms. Paulson and his team believe current prices reflect risk of a wave of defaults he sees as extremely unlikely. Paulson is also concerned that the massive stimulus plans will result in runaway inflation sooner rather than later. By some accounts, 10% of his holdings are in gold.
- Alan Fournier, whose Pennant Capital hedge fund is up about 9% this year, is bullish on a sector that has been in the headlines lately: healthcare. Fournier has largely shrugged off fears that Obama’s healthcare plan will limit corporate earnings, arguing that most investor fears are overblown. Fournier is also bullish on utilities and coal, although he is concerned over the direction of the overall economy. “I just don’t know if the market can sustain itself past this brief window, when the stimulus impacts the economy,” Fournier says. “It’s only a matter of time before stimulus effects fade, the economy rolls over, deficits hurt bond yields and the dollar gets hurt.”
How To Play Along With The Pros
While Soros, Paulson, and Fournier oversee multi-billion dollar funds that have complex trading strategies and instruments at their disposal, average investors can gain access to many of the markets these experts are following. That isn’t to say the average Joe can replicate the performances of these hedge funds in his Scottrade account, but simply that the development of the ETF industry allows for quick, cost-efficient exposure to broad market trends, and presents numerous opportunities to jump on any one of these bandwagons.
|Soros||Bullish on China||FXI, GXC, HAO|
|Bullish on India||INP, EPI, PIN|
|Bullish on Brazil||EWZ, EEB, BKF|
|Paulson||Bullish on MBS||MBB, MBG, UBD|
|Bullish on Financials||IYG, PFI, XLF|
|Concerned About Inflation||GLD, TIP, DBP|
|Fournier||Bullish on Healthcare||IHF, RYH, XLV|
|Bullish on Utilities, Coal||PUI, IDU, KOL|
|Bearish on U.S. Dollar||UDN|
Disclosure: No positions at time of writing.