Contrarian investment managers are in the frame given the current macro-economic environment. In times of turmoil, such investors benefit from turns in the market which see previously unloved investments coming back into favour. This setting also highlights the importance of identifying true alpha generators.
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Contrarian investment managers are in the frame given the current macro-economic environment. In times of turmoil, such investors benefit from turns in the market which see previously unloved investments coming back into favour. This setting also highlights the importance of identifying true alpha generators.
“The current macro environment has accentuated the need for investment managers like us,” comments Mark A. Meulenberg, CIO and Managing Partner at Masonry Capital Management, “During the last few years, it seems most investors, including professional money managers, were all on the same side of the boat with regard to long positions in technology, crypto and the like.
“We have always positioned ourselves as contrarian investors searching for catalysts in our investments that would drive value recognition. This mantra has really helped us the last few years as inflation has reared its head and many previously unloved investments have come back into favour.”
Meulenberg expects investors to demand a new way of thinking, one outside the traditional 60/40 stock-to-bond portfolio allocation: “Sophisticated investors, like institutions, should be openly questioning their allocations to both traditional and hedge fund managers who mostly seemed to be invested in the ‘Disruptor’ bubble over the last decade, with little attention paid to risk and only to return. Discerning between the true alpha generators and the beta pretenders should be a factor in driving demand in the coming year.”
Investors are going to realise that money should move to managers who are ahead of the curve and who think about the world in a different way. Meulenberg says: “Endowments and foundations who have funding requirements, family offices who were deep in private equity and venture capital, and individual investors who have utilised passive investing and a decades long allocation to the FAANMG stocks may all start looking for investment managers who understand the investing landscape has dramatically changed. This should provide a tailwind for emerging managers with alternative views to generating alpha for this year and possibly for many more to come.”
This shift would also involve a review of the way risk is considered. Both bonds and stocks lost money in 2022 and as the US Federal Reserve intent on crushing demand by raising rates rapidly in an effort to rein in inflation, the risk of losing money in financial instruments will remain elevated.
According to Meulenberg, this situation could also usher in the appeal of emerging managers once again. They fell out of favour following the financial crisis, as investors flocked to the biggest and most recognisable hedge funds, prioritising safety over return generation. However, the potential of a decade of elevated inflation may well change this sentiment.
“Inflation has historically bred volatility. The ability to be nimble and to invest in unique and underfollowed situations may take on increasing importance and hedge funds are positioned to capitalise on this,” Meulenberg outlines.
