How are the Legends positioned

The Legends Fund portfolio at the underlying level is highly diversified over long and short positions, geographies, equities, credit, currencies and fixed income markets. It is one of the most important attractions of a portfolio of hedge funds: to be able to profit from a wide variety of opportunities as they occur, both long and short. To illustrate the breadth of opportunities the Legends are positioned for, we will take a look at the Legends’ anticipated return drivers for 2017.

Developed Markets Macro

Brevan Howard, Moore Capital, Discovery

• Phase of ever-easier monetary policies in DM economies drawing to a close with a growing recognition of the costs of persistent large-scale QE and negative interest rates
• A more bullish outlook for US economic Growth
• US tax reform
• “Forced” repatriation of US overseas earnings
• Higher US interest rates with 10 year yields possible at 3% by the end of 2017
• Move to more fiscal, less monetary
• 16 elections scheduled in Europe
• ECB reaching its limits
• Increased consumer spending US
• Improving macro fundamentals and a new cyclical uptrend in Japan
• A stronger US dollar, weaker Yen, Euro and Renminbi

Emerging Markets Macro

VR Global, Discovery, Moore Capital

• A struggling China, further devaluing the Renminbi
• Lower interest rates Brazil
• Liquidity crisis in solvent Venezuela
• Long reformists (Brazil, Argentina, Mexico) Short deformists (South-Africa, Turkey)
• Puerto Rico restructuring
• Sovereign bonds of Greece and Argentina
• Solid long term growth in Inia

Normalization out-of-favor sectors

Paulson, Pershing Square, Glenview

• Extreme value in pharma-names with double digit growth companies at trough valuations
• Longs in a.o. Allergan, Shire, Teva, Mylan with room to more than double
• Wide mergers spreads (‘arbageddon’) due to anti-trust claims and stricter laws on inversions

Shorting QE driven over-valuation

• Record low nominal credit spreads to widen (Glenview, King Street, Discovery, Moore)
• Bond-like stocks, trading at 30 PEs (Lansdowne, Egerton)
• Extreme valuations of long term bonds to correct (Brevan Howard, Moore Capital, Discovery)

Assuming market independent (process) risks

• Leading corporate debt restructurings in countries Ukraine, Russia and Argentina (VR Global)
• Complex liquidations like Lehman Brothers and TXU (King Street)
• Freddie Mac and Fannie Mae (Paulson, Pershing Square, Discovery)
• Activist positions in Chipotle, Herbalife (short), Mondelez, Valeant (Pershing Square)
• Introducing measures to narrow the discount to NAV (Pershing Square)

Positioning for the risk of rising volatility and market shocks

Brevan Howard, Moore, Discovery, Transtrend

• European disintegration: political events Netherlands, France, Germany and Brexit negotiations
• Inflationary or deflationary shock
• (Sudden) China devaluation
• Stagflation risk UK

Equity Markets

Lansdowne, Egerton, Discovery

• Long US assets
• Industry winners and losers due to US tax reform and deregulation
• Disruption, e.g. Amazon (long) affecting spending habits, also in new categories such as food
• Strong Japanese equities
• Volatile European equity markets
• Long select emerging markets like India and Argentina
• Largest single name equity positions on Legends Fund portfolio level: Mondelez, Allergan, Comcast, Air Products and JP Morgan