Contrarian Investing

The FT Lex team reports to FT readers:

Dear investor,

It has been a profitable first half for Contrarian Partners. Our core investment strategy remains unchanged: to mine the research produced by investment banks every six months to establish consensus trading strategies. Then trade against them.

The year-end produced a rich crop of predictions. The usual sources – let’s spare the names – were generally negative on US government debt, which was expected to show increasing signs of strain. In the event, only Ukranian debt did better than Treasuries; our long position gained about 10 per cent. For similar reasons we loaded up on Japanese government bonds, which rose by double digits. Currency strategists, meanwhile, reckoned that the euro would benefit from continued diversification of FX reserves. The yen, they added, would be a big loser as the Bank of Japan lagged other central banks in raising rates. Our short euro/USD and long yen/USD trades were two of our best, yielding about 20 per cent. Equities, as ever, provided some good opportunities. Just as no one expected the Mongolian, Bangladeshi and Sri Lankan benchmarks to finish the half-year on the winners’ podium, few anticipated that last autumn’s correction in Chinese stocks would turn into a rout. Shorting H-shares in Hong Kong returned 16 per cent.

Not all of our positions were successful. We avoided most of the troubles in southern Europe, as almost nobody alerted us that there were troubles ahead. Yet there were enough generalised fears of a sell-off in Spanish government bonds for us to increase our exposure, with painful results (-16 per cent). Regrettably, some currencies did perform as predicted; the Australian dollar and South Korean won in particular. In general, though, the advice was reassuringly poor. The markets continue to reward us for listening to the experts – then doing the opposite.


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