Jupiter’s Clunie on why a broad US short makes sense

Added 2nd September 2016

James Clunie is short the US. While it is a simple trade, the manager of the Jupiter Absolute Return Fund said the combination of short term political risk and seasonality would suggest such a position makes sense.

Jupiter’s Clunie on why a broad US short makes sense

From an investment standpoint, he explained, Hillary Clinton is perceived as a supporter of increased regulation and control of business, which is, in the main, unhelpful, especially, he said at a time where valuations are high and earnings have been falling steadily.

As for the Republican nominee, Donald Trump, he said, his election would not be good for shares, at least not on day one.

When one adds to this the fact that the US market tends to be generally weaker in September and October, a simple short strategy makes sense.

At the other end of the spectrum, Clunie is currently, long the UK and Japan.

“In Japan I can find stocks that are delivering earnings and that have plentiful cash flows that might come back to shareholders,” he explained.

In the UK the reason for the long position is slightly different. “I can find quite a few under-priced shares, value shares that are unloved that have sound balance sheets that are cheap.”

Overall, Clunie said, his fund is around 1% net short. “I can find attractive stuff in some markets and I can find a lot of heavily-valued, over-levered over-financial-engineered stocks with falling earnings and messy accounts, especially in the US.

 “In the US, cyclically adjusted P:Es are high which means future returns are likely to be low. I take the view that in the end something changes.” he said, adding: “An election is coming up, that might be the catalyst, or it could be totally different, the Fed could raise rates more quickly than the market expects, or the market could go up so much that it decides to have a 1987-type shock that sees the market fall for no discernible reason.”

While Clunie admits it is crude thinking it is a principle on which to hang one’s hat. “It goes back to the foundational premise: buy low, sell high. If you buy stocks at a price such that future returns are expected to be low, stuff happens,” he said. 

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Geoff Candy

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Geoff Candy joined Portfolio Adviser as News Editor in May 2014. He has been a financial journalist and broadcaster since 2005 and, in that time has worked in both South Africa and the Netherlands, covering everything from high street retailers and construction companies to mining and insurance.

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