The 24th annual Sohn Investment Conference kicked off Monday in New York with some of Wall Street's up-and-coming hedge fund managers announcing their top investment ideas.
Sohn is one of the most anticipated hedge fund events of the year. Fund managers volunteer their time and best investment ideas to help raise money in the fight against childhood cancer. The conference begins with Next Wave Sohn, a session featuring the young or new talent among hedge fund managers.
The picks from these rising stars:
Lauren Taylor Wolfe, Impactive Capital
Investment idea: Long Wyndam Hotels & Resorts
Wolfe, who founded Impactive earlier this year with the help of fellow Blue Harbour defector Christian Asmar, said that there's "no hotel we'd rather own" than Wyndam.
Wolfe highlighted Wyndam's insulation from online disruption thanks to its commanding position in the midscale and economy hotel market. Impactive sees more than 50% upside for the stock over the next few years amid ongoing consolidation around the globe.
Impactive prioritizes investment strategies like activism and a focus on environmental, social and governance.
Todd Westhus, Olympus Peak Asset Management
Investment idea: Short Western Digital bonds, long its senior secured bank debt
Westhus deemed Western Digital a "melting ice cube business" thanks to its dated hard disk drive business, which accounts for about half of the company's sales. Though Western Digital also produces solid state drives, a faster and more modern drive, Olympus said that the company's fundamentals continue to deteriorate despite rising market prices.
Specifically, Westhus said Olympus is short the company's bonds and long its bank debt, hoping to capitalize off a 2-point spread. This long-short trade only has 2 points of upside and 2 points of downside so it's carry neutral. So, while the firm said it's protected on a potential loss, he said there's a "ton of upside."
"Again, it's not about if we are right or wrong, it's how much we lose when we're wrong and how much we make when we're right," Westhus said.
Matthew Smith, Deep Basin Capital
Investment idea: Long Cabot Oil & Gas
Matthew Smith of Deep Basin Capital, a nascent energy-focused fund based in Stamford, Connecticut, said he's long Cabot thanks to the company's solid production. Smith described Cabot as a preeminent player in the Marcellus Shale region of New York, one of the biggest and most prolific sources of natural gas in the country. The manager said that about one-third of all natural gas from the U.S. is generated in Marcellus.
"Many of Cabot's peers are materially, structurally and terminally disadvantaged and, should Cabot not be acquired, we think in very short order, Cabot will be just one of very few natural gas E&Ps left standing," Smith said.
Deep Basin's upside scenario for the stock puts it in the mid-$40 range — it opened at $25.15 Monday — with downside risk to the low-$20 range. His base case puts in the stock in the mid-$30 range.
Parvinder Thiara, Athanor Capital
Investment idea: Receive front-end 2-year Brazilian rates & short the Brazilian real (Buy USD calls / BRL puts)
Central to Athanor's thesis are expectations for Brazilian monetary policy. Thiara said that markets are pricing in one of the most aggressive hiking cycles in the country's history, implying that the Brazilian real could be overvalued despite the unlikelihood of a tightening regimen.
"Domestically, the Brazilian economy cannot withdraw the monetary policy the market's pricing in," Thiara said from the conference. "At the current pace of growth … it will take over three years for Brazil to reach [its] previous peak."
Thiara said that low inflation and a wobbly economy better justify monetary easing in Brazil instead of the expected tightening. The fund manager also reiterated claims that Brazilian President Jair Bolsonaro is like U.S. President Donald Trump, a fan of lower rates who could spark pressure to cut borrowing costs.
All else constant, higher interest rates tend to buoy the value of a country's currency by attracting foreign investment and demand for the home country's currency.
Angela Aldrich, Bayberry Capital Partners
Investment idea: Short Treasury Wine Estates (TWE-AU)
Aldrich, who founded Bayberry in 2018, said that despite a 350% run in recent years, she's now short Australian wine company Treasury Wine Estates. The company, which includes brands like 19 Crimes, Sterling and Penfolds, originally saw strong growth in China and in its masstige offerings, which include $10 to $15 bottles.
The manager said that barring early success in China, Treasury is now facing a variety of counterfeit offerings in China as well as price pressure as sales pivot toward e-commerce.
"The U.S. … is not growing," Aldrich said. "19 crimes has really been the company's savior lately. ... They are stuffing it into every distribution channel they can."
Aldrich also highlighted recent management departures including five division heads, four chief financial officers and three global executives in the last five years.
Bayberry sees at least 50% downside on this stock, which was last seen at around 16 Australian dollars in Australian trading.
