U.S. President Donald Trump’s policies could lead to more violent stock market movements, something prominent hedge fund manager Lee Ainslie said could help his portfolio rebound after a lousy 2016.
Ainslie’s $11 billion Maverick Capital missed out on a rally sparked by Trump’s unexpected election in November and ended the year with double digit losses in its biggest funds, underperforming the broader stock market and most hedge funds.
But the manager, a protege of storied industry investor Julian Roberston, wrote to investors in a letter dated Jan. 17 and seen by Reuters on Friday, that he was confident his firm will make money this year. Stocks that ran up could fall back and bets against some retail stocks will pay off, he said.
“Maverick has a long and consistent history of generating strong returns after periods of loss,” the letter said.
The Maverick Fund lost 10.6% and the Maverick Levered fund fell 20.9%.
Rising prices and tight labor markets could threaten economic growth and Trump’s uncertain foreign policy plans, trade and tax policies could translate into more stock market gyrations, Ainslie wrote.
“Did I mention that the President-elect has a habit of sending random and sometimes bizarre tweets in the early morning hours?” the letter said. “Such uncertainty on a vast range of critical issues will likely breed higher volatility in the equity markets.”
Ainslie’s call for more stock market volatility seems currently out of step with other observers and recent market behavior. The VIX, which measures volatility, has been running below its historical average in January. But markets can reverse fast.
“The market’s perspective on expected volatility can change quickly and violently. . .we believe we are well-positioned to endure a higher volatility environment,” Ainslie wrote.
Maverick’s largest positions included computer software company Adobe Systems (ADBE), social media company Facebook (FB), biopharmaceutical company Pfizer (PFE) and discount travel company Priceline Group (PCLN).
He did not identify the retailers he is betting against and cautioned that it was not a simple “assessment of the ecommerce vs. bricks and mortar Battle Royale.” “We no longer believe the theme is “Short Retail.” We are now in the early innings of what we believe is called “Omni-Channel Evolution” and stock selection has never been more important,” he wrote.
Despite losses, Ainslie said investors stuck with the firm and added new money every month in 2016.