Hedge fund alpha from Titan stocks
Jan 6, 2020
In the 2010s, the stock that generated the most alpha for hedge funds was Apple. Other Titan stocks like Charter, Amazon, Facebook , Netflix, Microsoft, and Google were among the top 10. (Source: Novus)
These days, the stock market moves making the most money for hedge funds are ones that don't require years of experience deciphering balance sheets or a business school degree. It's the stocks of simply high-quality growth companies on the right side of technological disruption.
Is value investing dead?##
You may have read headlines about the demise of "value investing" in recent years. Businesses in industries like retail and energy have underperformed growth sectors (like technology) massively. They are considered value stocks because of what they trade at compared to their historical earnings.
For example, you may pay a $10 stock price to get $1 of annual earnings in a value stock (10x P/E), versus paying $30 to get $1 from a growth stock (30x P/E). Some investors only invest in statistically cheap stocks (value) regardless of quality, while others prefer to pay up for high-quality, faster growing companies (growth).
Value stocks are trading at their lowest valuations in decades. Some believe they will soon make a comeback, but many hedge funds disagree. The founder of legendary hedge fund Lone Pine Capital put it succinctly:
"Much has been written about the multi-year underperformance of 'value' stocks, with an expectation of a reversion to the mean. We believe that structural changes in the economy, driven in part by technology, make this unlikely."
The key takeaway here is that hedge fund alpha is being driven by stocks that look expensive on the surface but have the fundamentally best business models. These are the technological disrupters like Facebook, Amazon, etc. -- and they don't expect that to change anytime soon.
Hedge funds like Lone Pine believe the cheap companies are, well, cheap for a reason: they're slow to adapt to technological changes, and as long as that happens, they'll keep getting cheaper. It's a structural shift that your Titan portfolio is well-positioned for, given the funds we analyze and the stocks we invest you in are quality- and growth-oriented.
Be prepared for a correction##
We wouldn't be surprised to see traditionally cheap "value" stocks make a comeback, especially if "growth" stocks see a correction and trigger a rotation. Hedge funds have been riding the momentum trades in tech and telecommunications for years now. A quick unwinding of trades by quants could clam the sector like we saw in September 2019.
Even if we see another momentum correction, we're confident about the structural advantages of your companies over the long run.
Corrections are generally a good buying opportunity. Some of the best hedge funds, including Coatue and Lone Pine, lost big in September due to the drop in momentum stocks, but they took advantage and bought more of stocks like Netflix at the time. So far, it's paid off.
Cash Management
© Copyright 2024 Titan Global Capital Management USA LLC. All Rights Reserved.
Titan Global Capital Management USA LLC ("Titan") is an investment adviser registered with the Securities and Exchange Commission (“SEC”). By using this website, you accept and agree to Titan’s Terms of Use and Privacy Policy. Titan’s investment advisory services are available only to residents of the United States in jurisdictions where Titan is registered. Nothing on this website should be considered an offer, solicitation of an offer, or advice to buy or sell securities or investment products. Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are hypothetical in nature and may not reflect actual future performance. Account holdings and other information provided are for illustrative purposes only and are not to be considered investment recommendations. The content on this website is for informational purposes only and does not constitute a comprehensive description of Titan’s investment advisory services.
Please refer to Titan's Program Brochure for important additional information. Certain investments are not suitable for all investors. Before investing, you should consider your investment objectives and any fees charged by Titan. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested, including principal. Brokerage services are provided to Titan Clients by Titan Global Technologies LLC and Apex Clearing Corporation, both registered broker-dealers and members of FINRA/SIPC. For more information, visit our disclosures page. You may check the background of these firms by visiting FINRA's BrokerCheck.
Various Registered Investment Company products (“Third Party Funds”) offered by third party fund families and investment companies are made available on the platform. Some of these Third Party Funds are offered through Titan Global Technologies LLC. Other Third Party Funds are offered to advisory clients by Titan. Before investing in such Third Party Funds you should consult the specific supplemental information available for each product. Please refer to Titan's Program Brochure for important additional information. Certain Third Party Funds that are available on Titan’s platform are interval funds. Investments in interval funds are highly speculative and subject to a lack of liquidity that is generally available in other types of investments. Actual investment return and principal value is likely to fluctuate and may depreciate in value when redeemed. Liquidity and distributions are not guaranteed, and are subject to availability at the discretion of the Third Party Fund.
The cash sweep program is made available in coordination with Apex Clearing Corporation through Titan Global Technologies LLC. Please visit www.titan.com/legal for applicable terms and conditions and important disclosures.
Cryptocurrency advisory services are provided by Titan.
Information provided by Titan Support is for informational and general educational purposes only and is not investment or financial advice.
Contact Titan at support@titan.com. 508 LaGuardia Place NY, NY 10012.