{"id":27718,"date":"2023-04-28T15:03:29","date_gmt":"2023-04-28T15:03:29","guid":{"rendered":"http:\/\/lynettelockhart.com\/client\/trading-turbulence-in-banking\/"},"modified":"2023-04-28T15:04:15","modified_gmt":"2023-04-28T15:04:15","slug":"trading-turbulence-in-banking","status":"publish","type":"post","link":"http:\/\/lynettelockhart.com\/client\/trading-turbulence-in-banking\/","title":{"rendered":"Trading turbulence in banking sector: five hedge fund ideas"},"content":{"rendered":"

By Summer Zhen, Carolina Mandl and Nell Mackenzie<\/p>\n

HONG KONG\/LONDON (Reuters) – Five hedge funds interviewed by Reuters this week each gave details of a trading idea they think could result in a profit from the most significant turmoil to have roiled the banking sector since the 2008 financial crisis. <\/p>\n

The hedge funds said they can share ideas, but cannot reveal their trading positions for regulatory reasons.<\/p>\n

1\/ MAN GLG<\/p>\n

* Discretionary fund inside Man Group * Size: $26.3 billion as of end-2022 * Founded in 1995 * Key trade: long retail-focused bank bonds\/shortSME-focused bank bonds <\/p>\n

Sriram Reddy, managing director of credit at Man GLG, favoured exposure to retail-focused banks while shorting, taking a position against, small and medium-sized ones.<\/p>\n

“For some time we have been expecting and preparing for a slowdown in growth more generally, leading us to favour more retail focused banks with a diversified depositor base and a secured asset base – it means better protections both for investors and the banks during an economic slowdown,” he said.<\/p>\n

Reddy said he preferred senior unsecured bank debt, that allowed bondholders payment ahead of some other creditors in the event of an insolvency. <\/p>\n

Taking bearish positions on banks that lend to smaller and medium sized firms could prove opportunistic if the economy weakens, he added. <\/p>\n

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GRAPHIC: A tale of two ETFs https:\/\/fingfx.thomsonreuters.com\/gfx\/mkt\/lbvggzdlqvq\/A%20tale%20of%20two%20ETFs.PNG <\/p>\n

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2\/ AlTi ASSET MANAGEMENT<\/p>\n

* Invests in alternative asset managers, including hedgefunds * Size: $20 billion * Founded in 1980 * Key trade: Long\/short banks shares based on deposit flows <\/p>\n

Spiros Maliagros, AlTi’s head of alternatives, said the crisis is about confidence, so deposit flows and liquidity are key. He favours exposure to shares of bigger banks.<\/p>\n

“Currently, ‘regional bank’ is being used to generalize a large variety of banks,” Maliagros said. <\/p>\n

“I would go long larger, more diversified national banks that have experienced deposit inflows and short local, truly regional banks that have experienced outflows.” <\/p>\n

3\/ MOUNT LUCAS MANAGEMENT <\/p>\n

* Macroeconomic hedge fund * Size: $1.5 billion * Founded in 1986 * Key trade: Yield curve steepener<\/p>\n

Higher interest rates, stiffer bank capital and regulatory requirements after Silicon Valley Bank’s collapse in March would likely squeeze bank lending, said David Aspell, a partner at Mount Lucas Management. <\/p>\n

A slowdown strong enough to cool inflation would end U.S. rate hikes, meaning yields on short-dated bonds are likely to fall more than those on longer-dated ones, Aspell said.<\/p>\n

Two-year Treasury yields have fallen 35 basis points this year to 4.05%.<\/p>\n

“If lending drops a lot, activity slows, we will have a slowdown \u2013 which is maybe what the Fed wants, but it\u2019s a fine line to tread,” he added. <\/p>\n

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GRAPHIC: Loan availability compared to 3-months ago https:\/\/fingfx.thomsonreuters.com\/gfx\/mkt\/zdpxdkearpx\/Loan%20availability%20compared%20to%203-months%20ago.jpg <\/p>\n

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4\/ ASIA GENESIS ASSET MANAGEMENT <\/p>\n

* Actively managed Asia-focused global macro fund * Size: near $300 million * Relaunched in 2020 * Key trade: short yen <\/p>\n

Soon Hock Chua, CIO at Singapore-based Asia Genesis\u00a0Asset Management, favours shorting Japan’s yen against the dollar as bank turmoil will likely make the Bank of Japan more cautious and reluctant to raise rates.<\/p>\n

Speculation over a potential policy shift has helped lift the yen 13% from October’s 30-year lows.<\/p>\n

“Japan’s zero interest rates policy will remain intact. Trend-wise the Japanese yen should continue to weaken,” said Chua, noting that central banks in Asia have slowed or paused rate hikes. <\/p>\n

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GRAPHIC: Dollar yen and US regional banks https:\/\/fingfx.thomsonreuters.com\/gfx\/mkt\/zjpqjognwvx\/Dollar%20yen%20and%20US%20regional%20banks.PNG <\/p>\n

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5\/ MILL HILL CAPITAL<\/p>\n

* Credit hedge fund * Size: $350 million * Founded in 2016 * Key trade: Short firms with exposure to commercial realestate (CRE) and auto loans<\/p>\n

Mill Hill CIO David Meneret suggests betting against companies with exposure to commercial real estate (CRE) and auto loans through bonds or credit default swaps. <\/p>\n

Insurers, which holds commercial mortgage-backed securities and property, will likely feel pressures on CRE, he said. <\/p>\n

Some U.S. banks have singled out office CRE as a worry, with property values falling and more borrowers defaulting on loans amid rising rates and a slowing economy.<\/p>\n

Mill Hill added that auto lenders with a large exposure to subprime borrowers could face higher defaults as consumers’ wages are not keeping up with inflation.<\/p>\n

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GRAPHIC: Prices are rising faster than wages https:\/\/www.reuters.com\/graphics\/GLOBAL-HEDGEFUNDS\/zjpqjoemxvx\/chart.png <\/p>\n

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(This story has been refiled to fix spelling of Maliagros, not Maliagors, in section 2)<\/p>\n

\n

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(Reporting by Summer Zhen in Hong Kong, Carolina Mandl in New York and Nell Mackenzie in London; Editing by Dhara Ranasinghe and Alexander Smith)<\/p>\n

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