We Asked Investment Pros Their Best Ideas

Dec 29 2014 | 5:40am ET

Mayer Cherem
Managing Director, Head of Portfolio Solutions
PAAMCO

What was your best investment idea in 2014?

Best idea: shorting agricultural commodities in the spring of 2014 after the Russia-Ukraine conflict invited speculators to buy wheat. Price action showed a dramatic disconnect from the fundamentals. While there was a risk that shipments out of the Black Sea would halt, there were ample carryover inventories from the previous year in corn and wheat. Given that shipments actually kept flowing, prices reverted to match fundamentals quickly. Another record crop year in the U.S. for corn put the final nail in the box, bringing prices down alongside the flood of grains. On a relative basis, the spread between commodities (i.e., wheat vs. corn, or soybeans vs. corn) was also too wide, offering investors a second bite at the apple.
 
What are you bullish on for 2015?

Beyond Abenomics: Buying listed subsidiaries in Japan prone to benefit from the third arrow of Abenomics. Instead of an “all or nothing” speculative bet on the yen or the Nikkei that depends on the overall success of Abenomics, focus on the micro: changes at the corporate level. Japan has a system with a vast number of networks of corporates and listed companies, as many corporate groups have more than 10 subsidiaries (often referred to as “babies” in Japan). Of the 3,257 listed companies in Japan, about 20% are listed subsidiaries. The “third pillar” revitalization program, focused on improving corporate governance, is already triggering the unwind of many parent-subsidiary structures, unlocking value for investors. When these unwinds have occurred in the past, the subsidiaries were collapsed into their parent companies or spun out at premiums.

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