Metacapital's Narula: '14 Promises Challenges

Nov 21 2013 | 10:48am ET

This year hasn't exactly been a cakewalk for hedge funds, but one prominent manager is bracing for worse in 2014.

Next year will prove "a more challenging year" than this one, according to Deepak Narula. The Metacapital Management chief warned the Reuters Global Investment Summit that there was more volatility on the horizon, and that the days of regular double-digit returns are over.

Metacapital itself rose 40% last year, but, "absent some large shock to the system, those returns are history." Metacapital's flagship is up only 8% this year, although a new fund betting on rising interest rates has jumped 14%.

"When valuations are high, risk is much greater," he said yesterday. "Throw in changes to the Fed and the Fed's large footprint in the financial markets, which has to change."

"Bonds outright, I'd be even more scared about than equities," Narula continued.

Still, all hope is not lost: Narula said that mortgage bets offer promise in 2014.

"All else the same, mortgage rates have to go up," he said. "The securities that benefit from that are those mortgage derivatives." Narula also said that commercial mortgage-backed securities are attractive.

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