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It Ain’t Over Till the Fat Lady Sings

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Stockholm (HedgeNordic) – 2022 proved challenging for stock market investors, with the S&P 500, for instance, reaching its peak on the first trading day of the year and failing to revisit that high throughout the year. Launched just at the beginning of 2022, Peter Andersland’s Pensum Global Opportunities fared well during most of 2022, thanks to its positioning for a global equity bear market. However, the subsequent stock market rally since late 2022 took a toll on Pensum Global Opportunities in the first half of 2023.

Managed by Sector co-founder Peter Andersland, alongside his former colleagues at the Norwegian hedge fund house, Inger-Anne Varmann Vikre and Ermanno Mattio, Pensum Global Opportunities fell by about 20 percent in the first half of 2023 due to a long value/short growth tilt in the portfolio. “We believe that we are in a global equity bear market which began on January 3, 2022,” Andersland tells HedgeNordic. “Consequently, our beta-adjusted net exposure has been more or less flat.” This positioning enabled Pensum Global Opportunities to navigate the turbulent market conditions of 2022, with the fund edging down 2.0 percent for the year.

“We believe that we are in a global equity bear market which began on January 3, 2022.”

At the MSCI ACWI’s lowest point on October 26, when the gauge for global equity markets was down by 26 percent for the year, Pensum Global Opportunities achieved a gain of seven percent. The subsequent market rally proved costly for the fund. “Since October lows, we have had a market rally, which we still believe is only a bear market rally. It has cost us dearly,” Andersland acknowledges.

Long Value/Short Growth Tilt

The investment approach of Andersland’s team involves identifying inflection points in profit pools shared by groups of companies, to find investments on the long and short sides. The basket of long positions reflects exposure to gold and uranium miners, oil refiners, oil/gas producers and oil/gas service providers, food and agriculture, as well as security and defense companies. The basket of shorts includes companies with business models depending on low-interest rates, money-losing tech, ‘zombie’ companies, as well as cyclicals dependent on stretched consumers.

Andersland explains that the fund’s underperformance has been primarily driven by an implicit long-value/short-growth tilt in the portfolio. Russel 1000 growth, for instance, outperformed Russel 1000 value by 24 percent during the first six months of 2023. “In addition, implied volatility declined materially, causing a repricing down of our long-dated out-of-the-money puts,” elaborates the portfolio manager. Even so, Andersland maintains the view that the current market environment represents a bear market rally and that that market will take out last year’s low. “We hold this view until our indicators tell us that it is the beginning of a new bull market of multiple years duration.”

“As long as the major trend is down, we expect to come out on top when the fat lady finally sings.”

Even if the October-to-date rally proves to be a new bull market, Andersland anticipates his fund’s long positions to outperform the shorts, “as the short book is now heavily overbought without comparative improvement in fundamentals and the longs should benefit more from both monetary inflation and an economic upswing.” If Andersland is right in his view that a bear market is around the corner, “we expect a serious payback from the short side,” he continues. “It will also provide an opportunity to cover shorts, as downside risk in the equity market will be strongly reduced following a meaningful market drawdown.”

Based on their trading experience since launch, Andersland says his fund’s portfolio works better during drawdowns but experiences setbacks during relief rallies. “As long as the major trend is down, we expect to come out on top when the fat lady finally sings,” concludes Andersland. “We need to see an agreement that the global economy is in a recession, earnings are declining materially and authorities try to kick-start the economy through monetary/fiscal policy – and stocks are truly oversold (they were not last October).”

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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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