Investors and traders are in constant need for alpha. They are constantly looking for areas to put their money to grow. To a starter, this seems like a very easy thing to do.
However, with thousands of places to allocate this capital to, experienced professionals will tell you that this is one of the most challenging things to do. For instance, 2015 proved to be one of the toughest years for money managers with average hedge fund managers realizing a paltry 0.5% growth in capital. Most hedge fund managers suffered double digit losses. They include Daniel Loeb, tough talking activist investor whose hedge fund lost 21% of its value. This was his second loss in the past 20 years following his 23% loss in the financial crisis. Bill Ackman, one of the flashiest hedge fund managers lost 20% his first ever loss. Other ‘losers’ in the year included people like George Soros and Warren Buffet.
Will 2016 be the year that will see money managers recover their losses? The following key C’s will play an important role in determining this.
In 2015, there was a major divergence in mark-to-market value of equity investors. This means that while certain companies improved their revenues, the same was not reflected in the share prices. In fact, a quick look at Bill Ackman’s portfolio, one will see that most of his holdings increased in revenue but the same was not reflected in the share performances. At the same time, 2015 was the year of mixed corporate news and events especially merger and acquisitions. Companies such as Pfizer, Allergan, SAB Miller, AB Inbev, Dow, and DuPont have announced major deals in the year. Investors and traders will therefore look at the corporate profits of these companies.
Oil is the most widely used commodity in the world. Its commonly regarded as the black gold. 2015 was one of the worst years for the commodity which has suffered significant losses. In the year, the price of oil has fallen from near $100 a barrel to the current $37. In addition, the spread between WTI and Brent has fallen from $5 to the current $0.32. Major oil analysts have forecasted that the price could reach as low as $25 a barrel. In fact, some minor oil benchmarks are currently trading at less than $25 a barrel. With a lot of news expected this year from oil producing companies, investors will carefully look at the oil situation and price their capital accordingly.
Commodity prices tumbled in the past year. All the major commodities saw their prices almost halved during the year. Molybdenum was the world’s worst commodity. The fall in these commodities have significantly affected countries that produce them. For instance, countries such as Brazil, China, and Canada have seen their economies suffer the worst crisis in history. Therefore, investors will watch closely these prices.
China is the second largest economy in the world. In the past few years, the country has emerged as one of the leading consumer and producer in the world. The happenings in China have continually affected how the world economy looks like. For instance, in the past decade, increasing expansion of the Chinese economy has created a lot of wealth for countries that export to the country. In 2015, when the economy started to show signs of weakness, the spill over effects was witnessed globally. In 2016, investors will place a major emphasis on the Chinese market to determine how they allocate capital.
Investors will closely watch the currencies and how they trade this year. For investors in the emerging markets, they will anticipate recovery in these currencies. This will also be the case for American companies with exposure in these emerging markets. The common denominator will be the United States dollar whose continued gain will mean losses to these companies.