Trends Watch: Technology, Media and Telecommunications
October 22, 2020
By Elana Margulies-Snyderman
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 with Josh Koren, Managing Partner & Chief Investment Officer, Musketeer Capital Partners.
What is your outlook for alternative investments?
This is an exciting time for alternative managers as the volatility in the market and the subsequent move away from beta-reliant funds has created an atmosphere where supremely talented, low-correlation managers can stand out. Going forward, we believe that capital will flow away from managers with massively net-long portfolios that look like a mirror of the top large caps in the NASDAQ, and instead flow towards portfolios with differentiated, well-researched, fundamental catalyst-driven ideas and a sized alpha short book. For too long, hedge funds have earned fees with portfolios that are filled with crowded, vanilla names. With the market near highs and election volatility imminent, managers will have to move out of the comfort zone of owning popular momentum names and instead pursue true differentiation in investment products.
Where do you see the greatest opportunities and why?
We have never seen a time so ripe with stock picking opportunities and the possibility of alpha generation. Market turbulence and uncertainty should be scary to the retail investor and exciting for the professional hedge fund manager. We favor the technology, media, and telecommunications (TMT) sector and particularly investing in the global internet arena as we witness these businesses experiencing massive value creation and destruction in the changing global environment that we all live in. In many cases, we find that a disconnect exists between the true outlook for a business’s fundamental performance and where Wall Street consensus expectations have been set for that business. Furthermore, we are finding that the best variant perceptions are now present in ideas that are less trafficked in by mainstream investors, which is what we prefer. We are finding high quality, unique ideas in the TMT space in both developed and emerging markets.
What are the biggest challenges you face and why?
Our biggest challenge as a new TMT fund is to break the perception that investing in the sector now is deploying capital at the “top of the cycle,” given the NASDAQ’s performance since the initial COVID-19-driven crash in March. However, our fund is entirely un-reliant on sector-long momentum, and we can easily maintain our goal of close to zero correlation to the broader index. Our short book is an alpha generator on its own, and has been carefully curated to double-serve as a profit-making hedge to the long book in the event of a sector draw-down. We also face the challenge of attracting capital to a new manager relative to an already established fund, but overcome that when investors see the relative “freshness” of our differentiated idea set relative to others and appreciate the opportunity to be early in an organization poised for scale.
What keeps you up at night?
The polarized political environment in this country. We are entering an election with a seemingly binary outcome where the left candidates’ victory would drag down the market, and the right candidates’ victory would lift the market in the near-term but pose questions about stimulus-driven growth in the long-term. The situation leads to a view of almost certain upcoming volatility. However, like usual, most market participants will position themselves for an expected outcome leading up to the election, and once the shock-and-awe of the result fades (in the 2016 election it took less than a day) markets should resume stabilization.
The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.