American President Donald Trump’s aggressiveness in responding to threats, including Russia, the ISIS and Syria is a cause of concern in the financial markets said Vincent Au, portfolio manager of New York-based hedge fund firm Gondor Capital Management.
“Among my list of concerns are the possibility of military conflict between the U.S. and another country,” Au said. He added, “President Trump's personality is much more aggressive in responding to threats such as Russia. Unlike the previous administration, the Trump administration does not kowtow.”
On June 18, a U.S. warplane shot down a Syrian Su-22 jet fighter the southern Raqqa countryside. The shooting of the Soviet-built fighter plane came as two US Navy F/A-18E Super Hornets engaged the Syrian warplane the Pentagon accused of dropping bombs near U.S.-backed forces in the region.
Au said that military conflict is not priced in the financial markets “because it is too unbelievable to happen.” He continued, “The markets have always believed that such a conflict would never happen because the consequences would be very bad. Then again, if there was a nuclear war, the financial markets may be the least of our worries.”
Gondor hedge funds outperform through May
Au raised his concerns over the geopolitics in Europe and the Middle East as his two hedge funds continue to outperform. His domestic hedge fund Gondor Partners, LP climbed 9.68% through May (+1.26% MTD), beating its benchmarks, with the S&P 500 gaining 8.66% and HFRX expanding 2.85% during the same period.
Gondor’s offshore fund, the Gondor Partners, Ltd., closed the first five months of 2017 up 8.54% (+ 0.73% MTD), while the S&P 500 and the HFRX finished 8.66% and 2.85% respectively during the same period.
Au boasts that Gondor funds have continued to beat a significant majority of other hedge funds.
“Our performance is dependent on the performance of our investments. As a value investor, there are times when there are no attractive opportunities thus I wait for a better entry. My job is not always about doing something. I don't trade and invest for action. And sometimes my job is to be in cash. I invest not solely base on ideas but also base on price,” he said.
He credits his investment selection and steady discipline for generating consistent alpha for his funds and investors, particularly in outperforming his benchmarks, the S&P 500 and HFRX.
Moving forward, Au said Gondor would continue doing what it always do to generate positive returns and achieve its upward climb. And that is to find ideas and employ the strategies that have allowed his funds to achieve its revenue goals.
In the second half of this year, he said that technology, financials, and oil-focused positions will provide good opportunities. Au is bullish in his positions at JP Morgan (JPM), Mondelez (MDLZ), Nvidia (NVDA), and Electronic Arts (EA).
“I believe in my strategy and have every confidence in its performance going forward. In fact, I don't recall a time when I was more confident about the future performance our funds than today,” he commented,
Interest rates, valuations pose challenges
Aside from possible military conflicts, Au is looking at interest rates and valuations as his biggest concerns. He expects these issues to challenge the markets for the remainder of the year.
He added that he is still cautious about valuations. Au commented, “Very much so, while I do not think the markets are ridiculously expensive I do know it's not cheap. It is never fun being the downer of the party but I prefer to be cautious and sleep at night.”
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.