This year’s bear market has left many investors in an investment situation, but Dan Niles says his Satori fund has bucked the trend. Niles said the U.S.-focused equity fund has rallied this year, outperforming the S&P 500, which has fallen about 20% over the same period. He did not disclose the exact performance of the fund. The key to the fund’s outperformance is its short positions, according to Niles. “We made money today. We’re in August. We’re ready 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 expect our shorts to turn a profit by the end of the year and have more shorts than longs in the portfolio,” he added. Shorting is a strategy in which investors bet that the price of a stock will fall. Niles said he is looking to make money on the short side by going after the “big names” in technology, amid what he expects will be an industry slowdown as people cut back on Internet-related services after the pandemic The Satori Fund also has short positions in ad stocks, which it said are under pressure amid competition from major streaming services like Netflix and Disney that “hoard ads” that would otherwise go to traditional advertising companies . Both Netflix and Disney have announced plans to offer lower-priced subscription tiers that include ads. The Satori Fund also maintains several long positions, though Niles cautioned that those positions remain vulnerable in today’s market. “There is no such thing as a long position in a vacuum, and all long positions are likely to suffer a 25%+ drop in the S&P, so they are mixed with shorts. We expect our longs to outperform the overall market,” he said. to say. Cash is King With market volatility likely to persist in the short term, Niles believes it’s important for investors to keep a close eye on their portfolios. “For retail investors who can’t manage their portfolio full time, we recommend cash, even if you lose [about] 5-7% to inflation, rather than losing another 25% to the stock market crash,” he said, joining a chorus of other investment professionals urging investors to hold cash in their portfolios. More than 20% of the Satori Fund’s portfolio is Stocks He Likes As for stocks he likes, Niles said he favors defensive companies in the context of a looming recession. “We believe economy will enter a more traditional recession in 2023 with slower growth and higher unemployment driven by higher rates, while inflation remains above the Fed’s 2% target,” he said. Niles is not the only market participant who favors a defensive position A host of Wall Street investment banks are urging investors to stay calm amid market turbulence and invest in companies with defensive characteristics, including chief strategist of Morgan Stanley US Equity, Mike Wilson. Niles likes Walmart as a defensive bet that could “benefit from a recession as consumers look for b argains.” He noted that the company gained market share during the 2008 global financial crisis, with the stock returning 18%, even as the S&P 500 declined 38% during the same period. “It also looks like they’re finally getting their inventory issues under control,” he said. Niles is also bullish on several service-related stocks. His fund bought shares in online food delivery platform DoorDash for the “first time” 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 shift consumer spending from goods to services as people start traveling again and Uber drivers get back on the road in a post-pandemic world. Another of Niles’ favorites is the sports betting industry, which he said is “one of the last sizeable markets” to go online. The industry is finally focused on profitability, with growth of more than 10% annually over the next decade and revenues of about $200 billion, Niles estimates. His top pick in this area is Massachusetts sports betting company DraftKings, for which he has forecast revenue growth of 60% this year and 40% over the next three years. Bullish on Commodities Niles also likes the commodities sector. “We believe that commodity prices will fall less than expected from current levels, even during a recession in 2023, given the lack of structural investment of the past decade that constrains 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 optimistic about demand for copper as the world accelerates its transition to electric vehicles. “Electric vehicles consume twice as much copper to build and supply is likely to peak in 2024,” he said.
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