Quadratic Capital Management is recommending that investors bet against two companies that are likely to be sensitive to a Federal Reserve cutback on stimulative policies.
"The Fed reducing the balance sheet is a major game changer," Nancy Davis, the firm's managing partner and chief investment officer, said in a presentation at the Sohn Conference in San Francisco. "The first place that's going to feel that is the levered credit market."
"I think there are some specific BDCs [business development companies] that have gotten very extended," Davis said.
Two of those companies, TICC Capital and , "are attractive shorts," she said.
The Fed this month is set to begin reversing its massive asset purchase program that was begun in the wake of the financial crisis.
TICC's risk from its collateralized loan obligation equity portfolio has increased, while Prospect Capital has a lot of exposure to multifamily housing loans and online consumer lending, Davis said.
Quadratic Capital is based in Greenwich, Connecticut, and is majority owned by women. The advisory firm primarily uses derivatives to invest in its global macro strategies.
Wednesday's event is the West Coast version of the investment conferences that began in New York and are best known for hedge-fund managers making market-moving presentations. The Sohn conferences benefit pediatric cancer and other causes for underserved youth. The conference is presented in partnership with CNBC.