Bearish hedge fund manager Dan Niles names his ‘favorite investment’ for 2023
Despite the January bounce , hedge fund manager Dan Niles sees more volatility ahead. He noted that the S & P 500 rallied seven times last year, but finished 2022 with an almost-20% loss. The index of large-cap U.S. stocks then bounced in January, gaining 6.2%. “My point is that this is pretty typical even during the tech bubble,” Niles, founder and senior portfolio manager of the Satori Fund, told CNBC’s “Street Signs Asia” on Thursday. According to Niles, his Satori Fund well outperformed the S & P last year by making money, but did not disclose its exact performance. Previously, Niles has said that pairing short positions with long ones is key to his strategy. ‘Favorite investment’ in 2023 Amid the volatility, Niles named his “favorite investment” for this year. It’s cash — a popular trade last year. “When thinking about my top picks for 2023, the first thought that came to mind was how volatile this upcoming year could be,” he said in notes sent to CNBC. “Particularly for those of you who cannot trade this market daily, cash is king. Sitting on cash allows us the flexibility to reinvest if the S & P goes lower in 2023,” Niles said. Specifically, he advised putting cash in three-month Treasury bills yielding about 4.5%, compared to just 0.03% in early 2022. Investors allocated more to cash in their portfolios last year, as interest rate hikes ramped up. This led to higher yields for investors, with cash outperforming most asset classes. Niles is not alone in continuing to be bullish on cash, with billionaire investor Ray Dalio saying last week that cash is more appealing than stocks or bonds. It comes as Niles said he expects stock markets to fall by the middle of this year as the Federal Reserve opts to keep interest rates higher for longer. “I think that’s where the disconnect is,” he said. “I think by the time you get to mid-year, and it becomes pretty apparent that the Fed is not going to be cutting, that’s when the unfortunate realization is going to be that the Fed is not going to help you out like people want.” Other top picks Niles also has four other picks for the year: Meta Niles says that Meta’s core business is “actually fine” even as the stock got crushed last year. He said Reels, its Tik Tok-like product, is doing well. The stock is “too cheap” now, he said. “Meta looks to be a solid long as we believe the stock is undervalued relative to what it should be.” Meta shares popped in after-hours trading Wednesday as investors cheered earnings that topped estimates. Healthcare exchange-traded fund Health Care Select Sector SPDR Healthcare is very defensive when the markets get hit, said Niles, who added that there are a number of good dividend-yielding stocks in the space. Mitsubishi Financial Group Niles said Mitsubishi Financial Group , the largest bank in Japan, is one of his top picks this year. Japanese banks should be significantly more profitable as Treasury yields go higher, he said. In December, the Bank of Japan unexpectedly widened its target range for 10-year Japanese government bond yields by tweaking its yield curve control policy. It sparked a selloff in bonds around the world, causing yields to rise. Niles called it a “massive change” for banks in the country, adding that rates in Japan will eventually rise. Global X Uranium ETF Niles told CNBC that the outlook for uranium is being driven by countries’ reluctance to rely on Russia for energy. “With Russia invading Ukraine, the world is looking again to nuclear for clean energy and as a means of gaining further energy independence from Russia,” he said. Uranium is used as fuel in nuclear power plants. — CNBC’s Elliot Smith contributed to the report.
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