Michael Hintze, whose $1.15 billion CQS Directional Opportunities Fund rose 31 percent last year, said some European exporters will “benefit dramatically” from a weakening currency in their home markets in 2011 and predicted investments in gold and oil will gain because of inflation.
“Euro weakness, especially via currency, is an opportunity,” Hintze wrote in a note sent to investors today. “Inflationary trades, which include going long commodities, such as gold and oil, via options structures are also useful additions to the portfolio.”
Europe is struggling to contain a debt crisis that triggered bailouts of Greece and Ireland last year totaling $259 billion. Continued economic challenges in 2011 should lead to a weakening of the euro, increasing revenue for companies that sell products overseas in emerging markets, according to Hintze.
The U.S. Federal Reserve’s plan to buy $600 billion of Treasury bonds in an effort to spur growth is “by its nature, inflationary,” Hintze wrote. Prices for goods and services haven’t yet increased because funds being pumped into the system have been slow to circulate through the broader U.S. economy, he said.
“There is no immediate inflation because the velocity of money is, I believe, low in most Western economies,” Hintze wrote. There is also “excess capacity in the system,” he said.
Regulation a Concern
Hintze, 57, predicted that stocks and bonds will “generally produce positive returns” in 2011 because the Fed’s actions will stimulate global markets, companies are repairing balance sheets and “emerging economies” such as India and China are growing. Challenges include increased regulation, which has prompted banks to curtail lending, he said.
Hintze’s London-based CQS U.K. LLP manages more than $9 billion in six funds. He founded the firm in 1999 after running Credit Suisse First Boston’s convertible bond and quantitative strategy team. The Directional Opportunities Fund, CQS’s best performer in 2010, uses a concentrated portfolio and invests in a range of assets.
Hedge funds are mostly private pools of capital whose managers participate substantially in profits from bets on whether assets will rise or fall. Funds on average increased 7 percent last year, according to data compiled by Bloomberg.