We Asked Investment Pros Their Best Ideas

Dec 29 2014 | 5:40am ET

We asked investment professionals what their best ideas for 2014 were, and what they are betting on in 2015. Here is what they had to say.

Joseph H. Marren
President & CEO, KStone Partners

What was your best investment idea for 2014?
 
KStone’s best investment idea for 2014 was to overweight structured credit which produced solid broad-based returns. This meant investing in hedge funds that were primarily focused on RMBS, CMBS, ABS, CDOs and CLOs. The structured credit markets were not immune to volatility in 2014; however, structured credit did not experience the wide movements seen in other credit instruments where leverage and daily liquidity funds exacerbated volatility. One of the reasons for structured credit’s strong performance was that many of KStone’s hedge funds had significant investments in legacy securities that continued to perform well and have attractive yield and duration profiles. The lack of new supply in non-agency RMBS also kept price volatility somewhat subdued.

What are you bullish on for 2015?

KStone is bullish on investment opportunities in Europe for 2015, as volatility is likely to increase significantly. Individual nations and the Eurozone as a whole appear to be at the front end of another period of crisis which will create substantial investment opportunity. In the third quarter, growth in the Eurozone was an anemic 0.6%. Yields on Greek sovereign bonds are spiking again raising “Grexit” questions. Russia’s central bank has pushed its key interest rate to 17%. Despite this move, the ruble has collapsed. Pundits are claiming that economic and political problems are ring-fenced and will not spread; however, it is unlikely that problems will be contained as the ECB has little room left to maneuver. Its only remaining tool is bond buying on a large scale. Meanwhile, governments have little to no capacity for fiscal stimulus despite voters in many jurisdictions having “austerity fatigue.” Finally, European banks will continue to offload problem assets. Given the results of the recent stress tests it is clear that several European banks will not survive another economic downturn.

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