Hedge fund
Interview: Sea Cliff Capital---Ellman, James---Fund Manager
>> abet laboratories says they’ll take a charge of $622 million in the second quarter for costs related to a legal settlement. the 34 cent a share charge will cover it. checking the stock it’s down about three cents. our next guest runs a hedge fund and he’s long on financial names because he sees the economy recovering. jims elvin is fund manager at sea cliff capital. tell us more about what you are buying and why. welcome.
>> thanks for having me on.
>> first of all, when people think of hedge funds they think of people making tons of money in a down market until the last few months, hedging against stocks . are you doing hedging against or is it all bullish, the position you have right now.
>> certainly doing hedging right now. i’m pretty bullish on the market. i think the economic policy coming through from the administration in terms of fiscal policies, monetary policy and currency policy all will lead to stronger economic growth next year than many expect today.
>> you focus fondle names. tell us about your particular focus.
>> sure. i’m most interested in financial stocks on a global basis and that’s all i look at.
>> you also keep an eye on bonds here. why are you more positive on bonds now than you were a couple of weeks ago? we’ve had a couple of pretty bad days in treasury markets. how do you characterize it right now?
>> sure. certainly the fed has indicated that they are going to be keeping interest rates low for a long period of time. i think they will be indicating to the market well in advance of when they start to raise rates. with that said, i’m not saying that that’s where you are going to make a lot of money in bonds in terms of capital appreciation but you don’t think you’ll see them go against you going are ward the next several months.
>> you like the shorter and or longer term?
>> certainly in treasuries you’ve had such a rally in treasuries over such a short period of time, some retractment will take place. but think over time they may be a little overvalued but i don’t think you’ll see yields change that much in the near-term.
>> are you looking at any corporates or concentrating on the treasury market?
>> i’ve been looking certainly at quite a few preferred stocks of financial service companies, particularly that are going to be taxed on their dividend at the 15% rate. i think over time you’ll see investors look to that lower rate leading to higher tax adjusted yields and see money moving out of municipal bonds and reit’s into preferred stock of high quality companies.
>> why do you think the bond market has been apparently so disappointed with the quarter% rate cut. would it have made a difference if we saw a half a percent rate cut?
>> not that much. i think the lower rates are brought today the more fiscal policy stimulation we have, the more currency stimulation we have today the bigger the economic recovery will be next year. i think it’s this time next year the concern may not be deflation but we’ll be talking about inflation and worries about inflation.
>> let’s talk about some of the names you are following here. bank of bermuda for one. people may not be as familiar with this as they would, say, bank of america. talk about bank of bermuda and why you are buying it.
>> bermuda, a nice place to visit, it trades on nasdaq, trades every day. it’s basically a small little trust bank. it looks a lot like state street or northern trust or mellon bank in terms of its business line but it’s barely moved in the last few months, been between $30 and $35, bounced around in a range. over time they are going to be buying back stock . nobody covers the stock right now on the sell side. someone might start covering them in the future. management owns a big chunk of the company, yet they haven’t gotten ton plane even once so far to fly to boston or new york to talk to institutional investors.
>> do you see any opportunity for perhaps an acquisition of this company?
>> well, certainly they could sell off some individual parts. however, i think bermuda law would make it difficult for a u.s. company to take over the entire company. however, i’m looking for market sensitive names these days, stock market sensitive names that have not yet moved very much with the rally in the stock market.
>> aegon is one of those names that hasn’t moved much with the rally in the market. is that one of the reasons why you like it here?
>> absolutely. aegon, a.e.g. in the u.s., that’s its a.d.r., it’s one of the largest insurers in the world. most of its earnings comes from the u.s., a little more than half, mostly from selling equity linked variable auity products. so when the stock market goes up their earnings go up as well. stock hasn’t moved yet to a great extent. also they generate a significant earnings in euro. when you translate that back into the dollar, with a weaker dollar, that means more dollar earnings. while their earnings have been going up most likely, we haven’t seen the stock really follow with a rise.
>> do you see any reason to advise people they should be more careful with some of these names they are not as familiar with? especially it might put people off your first pick is in bermuda. it’s kind of a far awayland in a financial way, and the things we’ve been hearing about bermuda you think of tyco and other things like that, they say, well maybe i don’t want to get into something in bermuda and in the financial industry. what do you say to people about that?
>> i think you have valid points there. of course, a.d.r.’s have been traded on the big board here in new york for many years now. most of them released their statement to u.s. gaap standards. in terms of tyco, i don’t think they were hit by tyco. remember, almost all of tyco’s operations were in the u.s. they were in new hampshire. somebody had a plaque on the wall that said they were in bermuda. this is a real company, they service customers all the way around the world. they are not just in bermuda.
>> still ahead, technology stocks have been leading the rally but many on wall street think they’ve risen too high, given the earnings outlook.
