Boaz Weinstein, who runs $5 billion hedge fund Saba Capital Management LP, said he is betting that stocks will rally and urged investors to buy protection on investment-grade corporate bonds because debt is overpriced.
“Credit stands out as extreme overvalue to equities,” Weinstein said in a speech yesterday at the Harbor Investment Conference in New York. “Equities look attractive to credit.”
Weinstein, 38, whose New York-based long-short credit fund typically avoids large bets on the direction of an economy and profits from pricing irregularities between securities, said he is buying the ninth series of Markit Group Ltd.’s CDX North America Investment Grade Index, which is composed of 119 credit-default swaps tied to high-grade debt. The swaps are securities used to hedge against losses or to speculate on creditworthiness.
Yields on U.S. investment-grade corporate bonds at 3.525 percent are approaching the lowest level on record, 3.452 percent reached Aug. 4, according to the Bank of America Merrill Lynch index data. That’s down from 4.148 percent a year earlier.
Weinstein reiterated that he is buying Italian bonds while betting against the banks, a trade he has mentioned in the last two months. Long-short managers can bet that the prices of securities will rise or fall. In a short sale, an investor borrows a security and sells it, expecting to profit from a decline by repurchasing it later at a lower price.
William Ackman, the activist hedge-fund manager, recommended shares of Justice Holdings Ltd., a shell company incorporated in the British Virgin Islands that is backed by his hedge fund, Pershing Square Capital Management LP. Ackman was named to Justice Holdings’ board as a non-executive director in April.
Pershing Square, based in New York, owns about 30 percent of Justice Holdings, Ackman said at the conference. The shell company is seeking to find a business to buy and take public, he said. Should Justice Holdings fail to make an acquisition in two years, Pershing Square will divest, he said. In the meantime, Justice Holdings has invested cash it raised in U.K. short-term gilts, he said.
“It’s as risk-free as risk-free is in the world,” Ackman said. “We don’t find something smart in two years, you get your money back investing in U.K. gilts.”
Ackman, 45, invests in companies he deems undervalued and then urges changes he believes will increase shareholder returns. In the past year and a half, he has bought stakes in Fortune Brands Inc. and J.C. Penney Co. Ackman became Canadian Pacific Railway Ltd.’s largest investor last year.
Stephen Raneri, managing member and portfolio manager of New York-based event-driven hedge fund LionEye Capital Management LLC, recommended shares of DST Systems Inc., the software provider that rejected a June buyout bid from private-equity firm RDG Capital LLC. Event-driven hedge funds seek to profit from events such as mergers.
Raneri cited the possibilities of a buyout at some point, shareholder activism from board member George Argyros or divestitures of assets, including private-equity and real estate holdings. DST, based in Kansas City, Missouri, provides information processing and manages data for financial-services firms and other sectors.
Howard Shainker, managing partner of New York-based Bow Street LLC, recommended shares of Rentech Nitrogen Partners LP, a unit that spun out of renewable-fuels developer Rentech Inc. in November. Rentech Nitrogen owns a plant that produces nitrogen fertilizer products in East Dubuque, Illinois, near the border with Iowa. The two states are the top corn producers in the U.S.
Shainker likes Los Angeles-based Rentech Nitrogen because it generates a lot of cash and nitrogen-based fertilizers will be in demand for weak corn crops, he said. The stock, which closed today at $25.01 in New York trading, may be worth as much as $30 a share, he said.