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Never Guess the Market

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Stockholm (HedgeNordic) – Stock markets shook off any concerns last year about new Covid variants, surging inflation, rising interest rates and geopolitical tensions to reach new all-time highs. The “everything rally” left long/short equity fund Elementa craving for attractive opportunities on the long side and glutted with opportunities to short, prompting the Elementa team to maintain negative market exposure throughout most of 2021.

After booking its first ever down year in 2021 due to negative exposure in an exhuberant stock market, Elementa reached its best month on record in January this year as stock markets hit reverse. “Elementa always strives to take advantage of the opportunities that the market offers us, but never try to guess the market,” Marcus Wahlberg (pictured), the founder and portfolio manager of Elementa, explains the rationale behind the negative market exposure throughout 2021 and going into 2022. “We have found it much easier to find shorts than longs from a bottom-up perspective.”

“Elementa always strives to take advantage of the opportunities that the market offers us, but never try to guess the market. We have found it much easier to find shorts than longs from a bottom-up perspective.”

Elementa seeks to invest in companies with high-quality business models at low valuations relative to current and future fundamentals. “These companies have been very difficult to find without relatively improbable assumptions on future key metrics,” argues Wahlberg, who runs Elementa alongside co-portfolio manager Eric Andersson. “At the same time, there are very attractive short selling opportunities in many companies with dubious business models, often loss-making, and/or companies positively influenced by the Covid-19 disease,” adds the Elementa founder. “This is, of course, extra attractive if such companies trade at a high valuations because of the prolonged zero interest environment.”

“Towards the end of 2021, we had negative contributions from some parts of our short side, these positions all gave back in January.”

Elementa booked a monthly advance of 10.1 percent in January this year, its best month since launching early 2015, to recoup most of last year’s decline of 15.8 percent. “Towards the end of 2021, we had negative contributions from some parts of our short side, these positions all gave back in January,” Wahlberg comments on the January performance. “We divide our short side into three parts and practically all contributed at the same time in January,” he elaborates. “Also worth mentioning is that we saw a shift in the market in what types of companies investors focus on, which helped us to generate alpha when volatility increased.”

“We will never add positions just to increase the overall beta in the portfolio, all positions, both longs and shorts, should qualify independently. The total portfolio only reflects our bottom-up approach…”

“As usual, we work to find great longs and shorts and as always, we have a long-term thinking,” Wahlberg explains Elementa’s approach to building and managing the portfolio. Despite risk-assets such as stocks plunging across the board in the first month of 2022, “we still have more difficulty than usual in finding longs that meet our highly set requirements,” says Wahlberg. “We will never add positions just to increase the overall beta in the portfolio, all positions, both longs and shorts, should qualify independently. The total portfolio only reflects our bottom-up approach, of course, combined with a risk management from a portfolio perspective.”

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Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com

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