Jun Bei Liu
Despite posting solid returns through 2024 the key drivers for the market to trade higher throughout 2025 remain intact, according to Jun Bei Liu, portfolio manager, and Jason Todd, CEO, of Ten Cap.
Ms Liu predicts the consensus will again underestimate the resiliency of the market and the tailwind from a combination of cyclical improvements, lower policy rates, improving confidence (both business and consumer) as well as record levels of liquidity, and that this will lead to equities moving meaningfully higher by year end.
“We started 2024 bullish and maintained our view throughout the year. As we head into 2025, we see no reason to adjust this view and are happy to be on the bullish side of a more moderate consensus outlook,” Ms Liu says.
“The global business cycle continues to expand, policy rates are expected to fall further, and inflation is no longer a concern. Even if inflation doesn’t moderate much further, it should easily sit within key central bank ranges by 1H25.
“In Australia, the RBA has not even started to reduce policy rates, and this tailwind can be expected to gather momentum early into 2025. We think too much effort is focused on trying to time policy shifts when the main message should be that rates are heading lower and by year end will be 75-to-100 basis points below where they started. As to the exact timing, that’s simply a function of how the data evolves.”
Mr Todd adds that although economic growth is bouncing around historic lows, the trajectory is firmly higher. He says risk assets get comfort knowing growth has stopped declining. In the early stages of a recovery this is enough to raise the confidence of investors.
“Off the back of enormous levels of excess liquidity in the system, and easier financial conditions, we think equities will have another strong year as earnings growth begins to pick up and revision momentum improves,” he says.
“There is too much concern around valuations for equity markets acting as a constraint to further gains. Elevated valuations are more a stock specific story than a market story.
“Falling rates, improving earnings and rising animal spirits are positive tailwinds and these should be sufficient to offset political volatility and uncertainty around China’s outlook,” he says.
At the same time, Ms Liu says she doubts 2024’s winners will be the same in 2025.
“As the domestic economy picks up and as rates fall, we expect better performance from cyclical areas and/or those exposed to an improving global backdrop who can also benefit from a weaker Australian dollar.
“The consensus appears reluctant to consider yesterday’s cyclical laggards, but we think this is where the stock specific opportunities lie.”
Mr Todd agrees and says valuation and ‘bubble-like’ concerns are misplaced.
“The equity market is not cheap, but neither are valuations at self-correcting levels.
“Long bond yields have moved higher but importantly it has not come at the expense of widening credit spreads (even below investment grade). So while this is a minor headwind, it has not signalled a broad tightening in financial conditions and so the equity market has largely absorbed this rise.
“Similarly, for every sector that appears expensive – such as tech and financials – there are large market cap weighted sectors that are trading at discounts, including energy, materials, utilities, and staples.
“In addition, the global policy rate cut cycle is not complete and while expectations have moderated for the US, we do expect further easing to take place. We expect the US to underpin the global growth outlook supported by China which is now doing more to backstop its economy.
“Optimism the US – as a result of the US presidential election – together with record levels of cash are underappreciated supports for equity markets, and this will provide a floor for any technically driven sell-downs.”
Ms Liu adds: “Historically, equity markets have had two 5 per cent corrections each year and a 10 per cent correction every 18 months. It’s well within a normal trading pattern to see moderate periods of weakness for the equity market without the bull market that began in late 2022 being broken.
“Within the equity market, an improving cyclical backdrop alongside lower policy rates is very supportive for the smaller and mid cap end of the market, particularly given the defensive / growth tilt that has been in play through 2024.
“We think falling risk aversion will support out-of-favour areas within value, such as energy and materials, as well as rate sensitive areas, such as selected property and laggard consumer plays. In addition, a steepening yield curve alongside rising capital market activity will benefit some diversified financials,” she says.
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TEN CAP MEDIA RELEASE
Liu, Todd launch new hedge fund business
Fund manager Jun Bei Liu and CEO Jason Todd will launch a new hedge fund business, Ten Cap, on 1 February 2025. It will be the largest ever launch of an Australian long-short equity-only hedge fund at just over $1.5 billion.
“Alpha Plus will become Ten Cap’s flagship fund. The fund is one of the longest running long short strategies in Australia and Ms Liu has been lead portfolio manager of the fund for the past five years via Tribeca Investment Partners.”
Mr Todd says the fund provides exposure to the ASX200 Index through a style agnostic strategy, overlaid with a proprietary long-short allocation and hedging strategy.
“Under Jun Bei’s stewardship, the Alpha Plus fund has been one of very best performing in market over both a short and long-term period.
“While the investment process and how the fund is run by Jun Bei will remain unchanged, she will now have a dedicated investment team and trader. The historic performance of the fund, back to 2006, remains the same.”
Mr Todd says the boutique investment firm will reflect the core values and beliefs of the founders and is an opportunity to bring together two sets of highly complementary skills.
“We believe that a fund management company does not have to be large or have multiple funds to be successful. “Our goal is to continue to provide our clients with best of breed returns and a best in class investment experience.”
Co-founder, Ms Liu, says she has already hired a highly experienced investment team that believes they will add to a proven and trusted investment proves, in turn providing even better outcomes for clients.
“Ten Cap will bring a fresh approach to Australian funds management – where money managers are accessible and where trust is built up by putting clients first and growing together.
“The objectives of the fund have not changed. We aim for equity-like returns but with less market volatility given the fund’s ability to hold both long and short positions.
“The fund will continue to operate under its established investment mandate and fee structure, ensuring continuity and continued excellence in performance,” Ms Liu says.
Tribeca will continue to provide middle and back-office functions for the Alpha Plus fund via a third-party supplier arrangement.
The origins of the name ‘Ten Cap’ come from the letter ‘J’ being the tenth letter of the alphabet and the first letter of its founders’ names.
“It also represents our strive for perfection of being 10 out of 10,” Mr Todd says.
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