Trends Watch: March 9, 2017
EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.
This week, Elana talks to Gary Brode and Raji Khabbaz, Managing Partners, Silver Arrow Investment Management.
What is your outlook for alternative investments?
We believe that the alternative investment business has suffered from too much focus on short-term volatility at the expense of higher long-term returns. While short-term volatility will always be important to some investors, others should take advantage of a longer-term approach. With the market at record highs, we think there should be increasing interest in managers who have a track record of producing both long and short alpha, and who can find value in adding profitable short ideas instead of relying on broad market hedges.
What is your outlook for the economy?
As bottom-up stock investors, we do not as a general rule engage in macroeconomic analysis or try to predict GDP growth. However, we are in a unique period, where the combination of a Trump presidency and Republican control of Congress could result in material changes in fiscal spending policies, regulatory and tax structures, and trade policies. Some of these changes could have a positive economic impact such as a reduction of corporate tax rates, or an increase in federal government spending on infrastructure and defense. Some could have a negative impact such as an overly protectionist trade policy. Our approach is to monitor and analyze material developments with respect to major economic policies as they unfold.
What keeps you up at night?
From a macro perspective, we are concerned that the multi-decade stock market rally due to the decline in interest rates is behind us, and we could now experience a sustained period of increasing interest rates. Largely due to falling Treasury bond rates, the S&P 500 more than tripled off the 2009 bottom despite subpar GDP growth. If we play that tape in reverse, elevated equity valuations combined with rising interest rates could lead to a lower market despite stronger GDP growth. As long/short equity managers, the general direction of the market is of less concern to us; however, a major inflection point in interest rate trajectories could produce a highly volatile market environment, making historical Beta measurements less reliable for assessing true market exposure and risk.