Stock-picking is back from the dead, as the Trump administration is set to step up government spending, Third Point's Dan Loeb said in his fourth-quarter investor letter.
"This environment is undoubtedly better for active investing — just as active investing was considered to be on its deathbed," the hedge fund manager said in a Wednesday letter. "Higher rates will create opportunities, reversing the one-way trade in yields that dampened the past few years."
President Donald Trump has promised to cut taxes and remove regulations, and hopes of a positive effect on growth accelerated stock market gains after his election.
"Winners and losers will be impacted by policies created by the Trump administration's actions and the world's reactions to them," Loeb said. "While the markets have moved since the election, we do not believe that investors have digested how different things will be."
The activist said markets will continue to do well if the administration fulfills its promises, while wages continue to rise and overall growth picks up.
Other market strategists have also said that 2017 is the year stock picking, or active money management, can increase investment returns after suffering amid a shift toward passive investment.
The president's proposed changes have already driven a shift in terms of which segments of the markets are doing well.The financial sector extended gains to reach highs not seen since before the financial crisis.
On the other hand, bets on very low Treasury yields and better returns from so-called defensive sectors such as utilities began to reverse. Utilities are down 1.5 percent since the election as the worst performing sector in the S&P 500, while financials are up 16.7 percent as the top performer.
But for the new president, Loeb said, "it will be tough to #MAGA [Make America Great Again] if the stock market is faring poorly. This is not a simple task."