I am Ryan Bend, I'm a Senior Portfolio Manager at Federated Investors.
What market risks are you currently monitoring and where do you find opportunities in a volatile market?
We're currently looking at two key risks. The first risk is the overall credit markets, and the second risk is the divergence between US equity markets and global equity markets. In terms of the credit side, we monitor credit spreads, we monitor volatility, we monitor the shape of the yield curve, we monitor the level of debt issuance and we monitor global central bank activities. And when the financial conditions or credit conditions are tightening, we are on the side of increasing our short exposure. In terms of the global equity markets, we think a key issue is it going to be the United States can continue to diverge from the other global markets. Europe, Asia, which have had relatively weak years this year. And in terms of finding opportunities, we feel on the long, short side, there's always opportunities for alpha generation, particularly when the markets are volatile.
What qualities do you look for in securities to short?
We want our shorts to be timely, over-valued and have compelling risk return. When we say timely, we want the security to have negative incremental developments. So securities where our numbers are coming down, where the company is missing analyst estimates, where the company is losing market share. In terms of over-valued, we want to short securities that we think are trading at higher levels than their intrinsic value warrants, companies with high price earnings multiples, high EBIT to enterprise value multiples. That's what we think about in terms of over-valued. And when we say compelling risk return, we're looking at the security's volatility, we're looking at our ability to trade it profitably, and additionally, we don't want to be short securities which will be acquired because the acquisition usually involves the premium.
Views are as of Dec. 7, 2018 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Short sales of securities involves unlimited risk including the possibility that losses may exceed the original amount invested. Federated Equity Management Company of Pennsylvania 18-76961 (12/18)