(Bloomberg) -- Billionaire Paul Marshall is the latest trading titan to bet on value stocks, which are making a historic comeback after years of neglect.
His $24 billion Eureka hedge fund within Marshall Wace has loaded up on bank and financial stocks, while selling shares that were fueled by central banks printing money over the past decade or so. The shift, prompted by potential interest rate hikes, means the fund is now net long value and short on growth stocks for the first time since 2011, according to an investor letter seen by Bloomberg News.
Marshall joins the great rotation in the stock market as rising bond yields, soaring inflation and Federal Reserve tightening bolster the prospects of cheap-looking equities. Meanwhile, racy meme stocks and technology shares have rapidly reversed last year’s gains. While the billionaire is not predicting a bear market, he sees a new set of winners emerging.
“Given the amount of insulin that has been pumped into the body economic, markets will be faced with a major challenge of sugar-deficiency,” Marshall told clients. “It does point to a shift in market leadership away from the beneficiaries of infinity-and-beyond-stimulus and towards the beneficiaries of rising interest rates.”
Rising rates typically follow strong economic growth and drive investors toward value stocks, which tend to be more cyclical and offer near-term cash flows. That leaves growth shares less appealing as inflation eats into their long-term earnings potential.
A spokesman for London-based Marshall Wace, which manages about $64 billion, declined to comment.
While Marshall did not disclose stocks he bought, his letter included brief analysis of Bank of America Corp. and Wells Fargo & Co. as rate-sensitive banks. The fund manager said he is also positioning to take advantage of sectors such as travel and transportation, which are likely to benefit once the Covid-19 pandemic fades.
The wide-ranging communication to clients also discussed the energy transition, bubble stocks and the metaverse, but concentrated on the end of central bank stimulus.
“We need to focus on the things we know for sure,” he wrote. “And if there is one thing we know about 2022 it is that it will be characterised by rising U.S. (and U.K.) interest rates.”
Marshall Wace is best known for running liquid hedge fund strategies betting on stocks. The Eureka fund returned about 10% last year, according to the letter. That compares with an average of 12.3% for equity hedge funds, according to data compiled by Bloomberg.
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