Dan Niles says his Satori Fund is beating the market this year. Here’s where he’s putting his money
This year’s bear market has left many investors deep in the red, but Dan Niles says his Satori Fund has bucked the trend. Niles said the U.S.-focused long-short equity fund is up this year, outperforming the S & P 500 , which has declined around 20% in the same period. He did not disclose the fund’s exact performance. Key to the fund’s outperformance is their short positions, according to Niles. “We made money today. We are up in August. We’re up for the year. But it’s not because of our longs. It’s because of our shorts,” he told CNBC’s “Street Signs Asia” on Thursday. “We are counting on our shorts making profits between now and year end and have more shorts than longs in the portfolio,” he added. Shorting is a strategy that sees investors bet the price of a stock will fall. Niles said he is looking to make money on the short side by going after the “big enterprise names” in tech, amid what he expects to be a sector slowdown as people cut back their consumption of internet-related services post-pandemic. The Satori Fund also has short positions in advertising stocks, which he said are under pressure amid competition from major streaming services such as the likes of Netflix and Disney that “suck up ads” which would otherwise go to traditional advertising firms. Both Netflix and Disney have announced plans to offer lower-priced subscription tiers that come with ads. The Satori Fund also holds several long positions, though Niles cautioned that these positions remain vulnerable in today’s market. “No long position exists in a vacuum and all long positions are likely to suffer in a further 25% drop in the S & P so they are paired with shorts. We hope our longs will fare better than the overall market,” he said. Cash is king With market volatility set to persist in the near-term, Niles believes it Is important for investors to closely monitor their portfolios. “For the retail investor that is not able to manage their portfolio full-time, we would recommend cash, despite losing [about] 5-7% to inflation, rather than losing a further 25% to a stock market decline,” he said, joining a chorus of other investment pros urging investors to hold cash in their portfolios. More than 20% of the Satori Fund’s portfolio is held in cash, according to Niles. Stocks he likes In terms of stocks he likes, Niles said he favors defensive companies against the backdrop of a looming recession. “We believe the economy will enter a more traditional recession in 2023 with slower growth and higher unemployment driven by higher rates, while inflation remains higher than the 2% Fed target,” he said. Niles isn’t the only market participant who’s favoring a defensive stance. A slew of investment banks on Wall Street are urging investors to remain calm amid the market turmoil and invest in companies with defensive characteristics — including Morgan Stanley ‘s chief U.S. equity strategist Mike Wilson. Niles likes Walmart as a defensive bet that could “benefit from a recession as consumers look for bargains.” He noted that the company gained market share during the 2008 global financial crisis, with the stock delivering an 18% return even as the S & P 500 declined 38% over the same period. “They also seem to be getting their inventory issues under control finally,” he said. Niles is also bullish on several services-related stocks. His fund bought shares in online food delivery platform DoorDash for the “first time time ever” recently. Niles highlighted the company’s “resilient consumer demand” and believes its second-half guidance was conservative. He also likes Uber as a way to play the switch in consumer spending from goods to services — as people begin travelling again and Uber drivers return to the road in a post-pandemic world. Another favorite for Niles is the sports betting sector, which he said is “one of the last markets of size” to go online. The sector is finally focused on profitability, with growth of more than 10% annually for the next decade and revenues of around $200 billion, according to Niles’ estimates. His top pick in this space is Massachusetts-based sports betting firm DraftKings , for which he has forecast revenue growth of 60% this year, and 40% in the next three years. Bullish on commodities Niles also likes the commodity sector. “We believe commodity prices will decline less than expected from current levels even during a recession in 2023 given low structural investment over the past decade restricting supply,” he said. Demand should improve as China tries to stimulate its economy with the upcoming election of Chinese President Xi Jinping for a third term in October, he said. In addition, Niles is bullish on copper demand as the world steps up its transition to electric vehicles. “EVs consume two times as much copper to build and supply is likely to peak in 2024,” he said.