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The most interesting investment story of 2023 was how all the experts and commentators, including myself, misperceived the market. Like many others, I thought stock prices would drop significantly and we would be in a recession. How wrong we were!
But that’s not going to stop us from announcing some adventurous investment ideas for 2024.
Most measures of financial market volatility are currently very low, in fact well below their long-term averages. Nevertheless, the world feels potentially unstable. Even if you disagree with the view that we are in an economic slowdown, there are plenty of reasons to think things are about to get even more chaotic, especially when it comes to elections.
Hedging against increased volatility is difficult for most retail investors, but two tools stand out. The first is a listed hedge fund called BH Macro, which performs well when the market is unstable, but tends to perform poorly when bulls prevail. Another is spread betting and trading company Plus500. This Israel-based money machine generates large amounts of cash even when markets are turbulent, but it also gets more active whenever the market gets a little distorted.
I’m concerned about the continued strength of the dollar in an election year with so much at stake. By most trade-weighted metrics, the dollar is currently at its peak, and there is a good chance it will reverse. This favors markets outside the U.S., but emerging market bonds denominated in local currencies tend to do particularly well when the dollar is weak.
This is an under-owned asset class and can be accessed via local currency ETFs such as iShares (iShares JP Morgan EM Local Government Bond UCITS ETF, ticker SEML). They generate profitable yields without the China risk associated with emerging market stocks and can also benefit from local currency appreciation.
Many companies are being taken private (bad news for the UK market, which has a large number of mature companies with low valuations). Despite my concerns about the private equity model, I have come to believe that all long-term investors need some level of exposure to both private equity and venture capital.
The challenge to date has been valuing these assets in light of the potential for economic slowdown and the cost of increased debt. This is especially true for venture capital firms, which have been hit hard by plummeting valuations and clogged IPO pipelines. My sense is that venture capital valuations may have hit rock bottom, but Jefferies analysts say private equity values may actually be rising.
Given that many publicly traded private equity vehicles still have heavy discounts, start drip-feeding cash to carefully selected funds such as OCI, Hg Capital, and Fund of Funds Pantheon International. Now might be a good time to do so. Perhaps the biggest advantage lies in publicly traded venture capital funds such as Chrysalis and Molten Ventures.
I have become more optimistic about the Seraphim Space Investment Trust. This mutual fund has received some negative comments, including from me, for failing to get a rating down over the past few years. We have always maintained that the space market is an exception and that valuations are being maintained. Recent trading suggests that may be true, which would make the fund very cheap.
Staying on the theme of private assets, the infrastructure and renewable energy funds sector has been hit by rising interest rates and falling power prices. This has forced many reputable funds to drop significantly in price. Recently, that range has begun to narrow with the prospect of lower interest rates. However, there are still some outliers with large discounts that we don’t think are justified.
Take the example of energy efficiency fund SDCL. SDCL has reduced its valuation due to rising interest rates (due to higher discount rate). It’s currently discounted by 38% and has a well-supported dividend yield of over 11%. Or Cordiant Digital Infrastructure, which has been embroiled in trouble affecting the data center investment trust Digital 9.
Cordiant has a solid strategy of owning data centers and fiber networks (as well as cell phone towers) across Europe. It trades at a 35% discount and has a yield of over 5.5%. Discount rates for both Cordiant and SDCL are expected to narrow significantly to the 20-30% range.
Meanwhile, here are two moves with very different momentum that have the potential for further upside: Bitcoin and Uranium. I don’t have a huge passion for cryptocurrencies, but I do recognize that turning cryptocurrencies into his ETF and incorporating a Bitcoin tracker fund into an asset allocation strategy could be transformative. I am. Of course, there is a halving that occurs every four years to maintain Bitcoin’s scarcity, and that is coming up this spring.
Of course, you could just buy a simple tracker vehicle, but I have one very left field idea. It is Phoenix Digital Assets, formerly known as NFT Investments. It was listed on Aquis to invest in, you guessed it, non-fungible tokens. When the market lost momentum, the fund pivoted to using its startup capital to buy cryptocurrencies. It is now effectively the UK’s listed vehicle for holding crypto assets such as Bitcoin and Ethereum. What’s interesting is that if we take the recent announcement at face value, this company is trading at a discount of more than 40% to these volatile assets.
The price of uranium is also rising. I have long defended the nuclear renaissance narrative in these pages, and I hold to the central idea that demand for uranium oxide will only increase further. That demand will shift from long-term contracts to the short-term spot market, and prices will rise further.
We’ve seen a rapid rally above $100 an ounce, but we’ve spoken to experts such as alternative asset firm Oceanwall, who say prices could rise even further over the next year or so. thinking about. If that happens, the recent upward momentum in the stock prices of Yellowcake (Aim’s physical holding company that owns uranium oxide stocks) and Geiger Counter (a publicly traded uranium stock fund that invests in uranium miners) would significantly increase. There is a possibility that it will happen. taller than.
I’m going to end the war in Ukraine. I very much hope that the Ukrainians will achieve a decisive victory over the Russians, but the possibility of some kind of frozen conflict must be increasing. If so, we might see a period of relative calm on the Russian side in recent years, perhaps due to rearmament taking place, but this could be due to investments in countries such as Poland and Georgia. This may be good news for your home.
Polish stocks are doing well, but they could do even better. One way to access them is through the iShares ETF ticker EPOL (iShares MSCI Poland ETF). The southern state of Georgia is best accessed through the UK-listed Georgia Capital Fund. The stock has already rebounded, up 42% last year, but it still trades at a hefty 53% discount. Its largest holding is Bank of Georgia, which by all accounts is the cheapest listed UK bank.
David Stevenson is an active private investor. He owns Yellow Cake, NFT Investments, Cordiant, Seraphim, Chrysalis, Hg, OCI, and Plus500. Email: adventurous@ft.com. twitter: @advinvestor.
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