Betting on Inflation Again

Includes: CCXE, DBC, IDU, TBT, TLT
by: Cam Hui, CFA

I recently pointed out that real-time indicators are showing that the economy is rebounding. As the markets have rallied from the reflation trade, my inflation-deflation timer model moved from a "neutral" reading to an "inflation" reading last week, which would move the model portfolio from equities to a basket of commodities.

Ken Heebner Buying Inflation Too
The model appears to be in good company as I see that Ken Heebner has also put on an inflation bet in his portfolio. Heebner is a portfolio manager with a terrific long term record (though he has struggled in the last couple of years). He has a "swing for the fences" style and tends to make big top-down bets.

I reverse engineered his macro bets and my analysis shows that Heebner has positioned his CGM Focus Fund portfolio for a commodity inflation environment. He is at an overweight position in Materials (click to enlarge):

... and Energy (click to enlarge):
By contrast, he is underweight in Utilities (click to enlarge):
... and has an implicit short position in the US long bond (click to enlarge):
Long commodities, short bonds and interest sensitives - that sounds like a commodity inflation bet to me.

Disclosure: No positions