Thursday, November 16, 2017

Norway's Fund Jolts Energy and FX Markets?


Wednesday, November 15, 2017

Top Funds' Activity in Q3 2017?

Julia La Roche of Yahoo Finance reports, Here's what the biggest hedge funds have been buying and selling:
The stock moves that the biggest hedge fund managers made in the third quarter are being revealed today.

Hedge funds of a certain minimum size are required to disclose their long stock holdings in filings to the SEC known as 13-Fs. Of course, the filings only provide a partial picture since they do not show short positions or wagers on commodities and currencies. What’s more is these filings come out 45 days after the end of each quarter, so it’s possible they could have traded in and out of the positions.

Still, it does provide a partial look into where some of the top money managers have been placing money in the stock market.

The stock moves that the biggest hedge fund managers made in the third quarter are being revealed today.

Appaloosa Management (David Tepper)
New: Micron Technology (MU)
Boosted: Facebook (FB)
Trimmed: Allergan (AGN)
Exited: Wells Fargo (WFC)

Baupost Group (Seth Klarman)
New: McKesson (MCK), AMC Entertainment (AMC)
Boosted: Allergan, Cardinal Health (CAH), Antero Resources (AR)
Trimmed: Dell Technologies (DVMT), Avis Budget (CAR)
Exited: Qualcomm (QCOM)

Bridgewater Associates (Ray Dalio)
Boosted: SPDR Gold Shares (GLD), Vanguard FTSE Emerging Markets ETF (VWO)
Trimmed: SPDR S&P 500 ETF (SPY), Intel (INTC)

Coatue Management (Philippe Laffont)
New: Tableau Software (DATA)
Boosted: Apple (AAPL), Alibaba (BABA), Shopify (SHOP), Snap Inc. (SNAP)
Trimmed: Symantec (SYMC)
Exited: Disney (DIS), eBay (EBAY)

Duquesne Capital (Stanley Druckenmiller)
New: Citigroup (C), Netflix (NFLX), and Nvidia (NVDA)
Boosted: JD.com, Salesforce (CRM), WorkDay (WDAY), Alphabet
Exited: Delta (DAL), American Airlines (AAL)

JANA Partners (Barry Rosenstein)
New: Jack In The Box (JACK)
Exited: Hewlett-Packard (HPE)

Marcato Capital (Mick McGuire)
New: Itron (ITRI)
Boosted: Terex Corporation (TEX)
Trimmed: IAC/ InteractiveCorp (IAC), Sotheby’s (BID)

Omega Advisors (Leon Cooperman)
New: Aetna (AET), Expedia (EXPE)
Boosted: AMC Networks (AMCX)
Exited: Allergan

Passport Capital (John Burbank)
New: Tahoe Resources (TAHO)
Boosted: Alibaba, Altaba, Amazon (AMZN)
Trimmed: Advanced Micro Devices (AMD)
Exited: Facebook

Third Point LLC (Daniel Loeb)
New: Altaba (AABA), Shire (SHPG)
Boosted: Alibaba (BABA)
Trimmed: Alphabet (GOOGL)
Exited: Humana (HUM), Charter Communications (CHTR)

Tiger Global (Chase Coleman)
New: Despegar.com Corp (DESP), RedFin (RDFN)
Boosted: Netflix (NFLX), Facebook (FB)
Trimmed: Teladoc (TDOC)
Exited: Alphabet (GOOG, GOOGL), American Tower (AMT)

Tiger Management (Julian Robertson)
New: Anthem (ANTM), JD.com (JD)
Boosted: Facebook, JPMorgan (JPM)
Trimmed: Celgene (CELG)
Exited: Teva (TEVA), Priceline (PCLN), Nike (NKE)
Before I get to what top funds bought and sold last quarter, I must tell you, I'm very busy in the mornings focusing all my attention on my watch list and certain stocks (click on image):


"Leo, we don't care about your watch list which moves up and down like a yo-yo, we want to know what Soros and company bought and sold last quarter."

Well, let me be frank with you, I don't care what Soros and company bought and sold last quarter and because you're not paying me enough to do this blog, I have to focus my attention on making money day in, day out.

More importantly, these are not markets to take big risks. Period. You can trade in and out of positions but you need to be really good and even then, you can get killed.

I try to post some of my thoughts on Stocktwits but there's no time, and when I'm trading and concentrating, I need all my attention because things move fast.

For example, one of the stocks on my watch list, Calithera Biosciences (CALA), took a nosedive this week and hit a low of $8.80 a share at around 3:20 yesterday before coming back strong this morning (click on image):


Why is this biotech on my watch list? Because a big hedge fund I like, Viking Global, owns a big stake in it and it has been on my watch list ever since it initiated a position.

Moreover, another big hedge fund I track closely, Adage Capital, also has a big position in this biotech. So, this morning, I watched it like a hawk, waited for biotechs (XBI) to rebound and then almost hit the trigger.

“Almost hit the trigger? What kind of a trader are you?!? That was an easy 8% right there!! Get out of US long bonds (TLT) and pull the trigger!!! Stevie Cohen would have fired you if he saw you not taking enough risk!!”

Well, I don’t answer to Stevie Cohen or anyone else, only to the man in the mirror and right now, I don't like these markets at all and even wrote on Stocktwits that we need to see a significant pullback in the S&P 500 right back to its 200-week moving average and lower (click on image)


"But that chart is so bullish, so beautiful, the trend is your friend, just buy MOAR STAWKS!"

Hold your horses Kimosabe, I've traded long enough and have gotten my head handed to me (literally) on a few occasions to know when to dial up risk and when to dial it down.

For example, right before the US elections, I told you to LOAD UP on biotechs (XBI) stating it was America's biotech, not Brexit moment.

Of course, back then, all my buddies were laughing at me, thinking I was nuts but they stopped laughing after they saw biotechs explode up. I can't blame them, most people would never trade the way I trade, nor do I recommend it because it's way too risky and volatile.

But the thing I keep emphasizing is to understand the macro environment first and foremost, then trade around it.

A couple of days ago when I discussed why CalPERS is considering more than doubling its bond allocation, I stated this:
[...] you know my market views. I'm openly worried about deflation hitting the US and my most recent market comments tell you that I think it's wise to take some risk off the table:
Moreover, I don't foresee a big reversal in inflation, and openly worry many market participants still don't get the "baffling" mystery of inflation-deflation.

I have also repeatedly stated on my blog to load up on US long bonds (TLT) on any backup in yields because when the bubble economy bursts and the next deflation tsunami and financial crisis hit us, it will bring about the worst bear market ever.

Of course, central banks know all this which is why the Fed has signaled it's preparing for QE infinity, something which I fundamentally believe is a foregone conclusion, which can explain pockets of speculative activity in the stock market.
I forgot to mention you need to be extra vigilant navigating through these prickly markets or else that big cactus will come back to haunt you for a long, long time.

I've said it before but it's worth mentioning again, my top three macro conviction trades going forward:
  1. Load up on US long bonds (TLT) while you still can before deflation strikes the US. This remains my top macro trade on a risk-adjusted basis.
  2. A few months ago I said it's time to start nibbling on the US dollar (UUP) and it continued to decline but I think the worst is behind us, and if a crisis strikes, everyone will want US assets, especially Treasuries. I'm particularly bearish on the Canadian dollar (FXC) and would use its appreciation this year to load up on US long bonds (TLT).
  3. My third macro conviction trade is to underweight/ short oil (USO), energy (XLE) and metals and mining (XME) as the global economy slows. Sell commodity indexes and currencies too. I'm also short emerging market stocks (EEM) and bonds (EMB).
Basically, I'm not buying the global reflation nonsense and think it's best to reduce risk and trade very actively here if you're going to take risks because the overall macro environment is deteriorating fast.

Now, what are the top funds doing? Are there any interesting moves worth noting? Sure, I noticed that Julian Robertson cut his big losses in Teva Pharmaceuticals (TEVA) last quarter but David Abrams, the one-man wealth machine, initiated a new position last quarter right before the stock got slammed hard a few weeks ago (click on image):


Now, Teva's shares are up nicely today but I can tell you from experience, that's not a chart you want to buy, more often than not, you will be disappointed (it is oversold but can become even more oversold).

And while David Abrams and his mentor Seth Klarman are great value investors, when it comes to timing, they're far from perfect. They have both been sitting on shares of Keryx Biopharmaceuticals (KERX) for a long time and they're losing money on them so far.

Still, these guys have conviction, they're excellent value investors who don't typically churn their portfolio, so if they're accumulating a position, it's worth paying attention.

As you click on the links below to each fund, you will be taken directly to their top holdings. I want you to stop looking at this information in a vacuum. Think about the macro environment and risks in these markets first.

Then, have fun looking at their top holdings, where they increased, where they reduced, start educating yourselves on how to draw daily and weekly charts for free on StockCharts using very simple moving averages at first (50, 100, 200 day or week) and start thinking whether there are risks worth taking on the long and short side.

"Leo, I want to learn to trade like you, can you teach me and give me a list of all the stocks you track and share more of your wisdom?".

No, I can't, it's too cumbersome and your risk tolerance definitely won't match mine. I also share way too much here and on Stocktwits.

All I can tell you is analyzing and trading markets and stocks is a passion of mine. I regularly look at the YTD performance of stocks, the 12-month leaders, the 52-week highs and 52-week lows. I also like to track the most shorted stocks and highest yielding stocks in various exchanges and I have a list of stocks I track in over 100 industries/ themes to see what is moving in real time.

When I tell you these aren't the markets you want to be playing in, I know exactly what I'm talking about because I'm watching these markets closely every day and my deflationary macro call looms large and is weighing on on all risk assets, not just stocks.

These ARE NOT the markets you want to be making any bullish or contrarian bets on. Trust me when I tell you global deflation will obliterate all risk assets and the only refuge will be in US long bonds (TLT).

Still, if you want to find hidden gems and take some risks, have fun looking at the third quarter activity of top funds listed below (click on links and then click on the fourth column head, % chg, to see where they descreased and increased their holdings).

Top multi-strategy and event driven hedge funds

As the name implies, these hedge funds invest across a wide variety of hedge fund strategies like L/S Equity, L/S credit, global macro, convertible arbitrage, risk arbitrage, volatility arbitrage, merger arbitrage, distressed debt and statistical pair trading.

Unlike fund of hedge funds, the fees are lower because there is a single manager managing the portfolio, allocating across various alpha strategies as opportunities arise. Below are links to the holdings of some top multi-strategy hedge funds I track closely:

1) Citadel Advisors

2) Balyasny Asset Management

3) Farallon Capital Management

4) Peak6 Investments

5) Kingdon Capital Management

6) Millennium Management

7) Eton Park Capital Management

8) HBK Investments

9) Highbridge Capital Management

10) Highland Capital Management

11) Pentwater Capital Management

12) Och-Ziff Capital Management

13) Pine River Capital Capital Management

14) Carlson Capital Management

15) Magnetar Capital

16) Mount Kellett Capital Management 

17) Whitebox Advisors

18) QVT Financial 

19) Paloma Partners

20) Weiss Multi-Strategy Advisors

21) York Capital Management

Top Global Macro Hedge Funds and Family Offices

These hedge funds gained notoriety because of George Soros, arguably the best and most famous hedge fund manager. Global macros typically invest across fixed income, currency, commodity and equity markets.

George Soros, Carl Icahn, Stanley Druckenmiller, Julian Robertson and now Steve Cohen have converted their hedge funds into family offices to manage their own money and basically only answer to themselves (that is my definition of true investment success).

1) Soros Fund Management

2) Icahn Associates

3) Duquesne Family Office (Stanley Druckenmiller)

4) Bridgewater Associates

5) Pointstate Capital Partners 

6) Caxton Associates (Bruce Kovner)

7) Tudor Investment Corporation

8) Tiger Management (Julian Robertson)

9) Moore Capital Management

10) Point72 Asset Management (Steve Cohen)

11) Bill and Melinda Gates Foundation Trust (Michael Larson, the man behind Gates)

12) Joho Capital (Robert Karr, a super succesful Tiger Cub who shut his fund in 2014)

Top Market Neutral, Quant and CTA Hedge Funds

These funds use sophisticated mathematical algorithms to make their returns, typically using high-frequency models so they churn their portfolios often. A few of them have outstanding long-term track records and many believe quants are taking over the world. They typically only hire PhDs in mathematics, physics and computer science to develop their algorithms. Market neutral funds will engage in pair trading to remove market beta.

1) Alyeska Investment Group

2) Renaissance Technologies

3) DE Shaw & Co.

4) Two Sigma Investments

5) Numeric Investors

6) Analytic Investors

7) Winton Capital Management

8) Graham Capital Management

9) SABA Capital Management

10) Quantitative Investment Management

11) Oxford Asset Management

12) PDT Partners

13) Princeton Alpha Management

Top Deep Value,
Activist, Event Driven and Distressed Debt Funds

These are among the top long-only funds that everyone tracks. They include funds run by legendary investors like Warren Buffet, Seth Klarman, Ron Baron and Ken Fisher. Activist investors like to make investments in companies where management lacks the proper incentives to maximize shareholder value. They differ from traditional L/S hedge funds by having a more concentrated portfolio. Distressed debt funds typically invest in debt of a company but sometimes take equity positions.

1) Abrams Capital Management (the one-man wealth machine)

2) Berkshire Hathaway

3) Baron Partners Fund (click here to view other Baron funds)

4) BHR Capital

5) Fisher Asset Management

6) Baupost Group

7) Fairfax Financial Holdings

8) Fairholme Capital

9) Trian Fund Management

10) Gotham Asset Management

11) Fir Tree Partners

12) Elliott Associates

13) Jana Partners

14) Gabelli Funds

15) Highfields Capital Management 

16) Eminence Capital

17) Pershing Square Capital Management

18) New Mountain Vantage  Advisers

19) Atlantic Investment Management

20) Scout Capital Management

21) Third Point

22) Marcato Capital Management

23) Glenview Capital Management

24) Apollo Management

25) Avenue Capital

26) Armistice Capital

27) Blue Harbor Group

28) Brigade Capital Management

29) Caspian Capital

30) Kerrisdale Advisers

31) Knighthead Capital Management

32) Relational Investors

33) Roystone Capital Management

34) Scopia Capital Management

35) Schneider Capital Management

36) ValueAct Capital

37) Vulcan Value Partners

38) Okumus Fund Management

39) Eagle Capital Management

40) Sasco Capital

41) Lyrical Asset Management

42) Gabelli Funds

43) Brave Warrior Advisors

44) Matrix Asset Advisors

45) Jet Capital

46) Conatus Capital Management

47) Starboard Value

48) Pzena Investment Management

Top Long/Short Hedge Funds

These hedge funds go long shares they think will rise in value and short those they think will fall. Along with global macro funds, they command the bulk of hedge fund assets. There are many L/S funds but here is a small sample of some well-known funds.

1) Adage Capital Management

2) Appaloosa LP

3) Greenlight Capital

4) Maverick Capital

5) Pointstate Capital Partners 

6) Marathon Asset Management

7) JAT Capital Management

8) Coatue Management

9) Omega Advisors (Leon Cooperman)

10) Artis Capital Management

11) Fox Point Capital Management

12) Jabre Capital Partners

13) Lone Pine Capital

14) Paulson & Co.

15) Bronson Point Management

16) Hoplite Capital Management

17) LSV Asset Management

18) Hussman Strategic Advisors

19) Cantillon Capital Management

20) Brookside Capital Management

21) Blue Ridge Capital

22) Iridian Asset Management

23) Clough Capital Partners

24) GLG Partners LP

25) Cadence Capital Management

26) Karsh Capital Management

27) New Mountain Vantage

28) Andor Capital Management (it shut down again, for now)

29) Silver Point Capital

30) Steadfast Capital Management

31) Brookside Capital Management

32) PAR Capital Capital Management

33) Gilder, Gagnon, Howe & Co

34) Brahman Capital

35) Bridger Management 

36) Kensico Capital Management

37) Kynikos Associates

38) Soroban Capital Partners

39) Passport Capital

40) Pennant Capital Management

41) Mason Capital Management

42) Tide Point Capital Management

43) Sirios Capital Management 

44) Hayman Capital Management

45) Highside Capital Management

46) Tremblant Capital Group

47) Decade Capital Management

48) T. Boone Pickens BP Capital 

49) Bloom Tree Partners

50) Cadian Capital Management

51) Matrix Capital Management

52) Senvest Partners


53) Falcon Edge Capital Management

54) Park West Asset Management

55) Melvin Capital Partners

56) Owl Creek Asset Management

57) Portolan Capital Management

58) Proxima Capital Management

59) Tiger Global Management

60) Tourbillon Capital Partners

61) Impala Asset Management

62) Valinor Management

63) Viking Global Investors

64) Marshall Wace

65) Light Street Capital Management

66) Honeycomb Asset Management

67) Whale Rock Capital

70) Suvretta Capital Management

71) York Capital Management

72) Zweig-Dimenna Associates

Top Sector and Specialized Funds

I like tracking activity funds that specialize in real estate, biotech, healthcare, retail and other sectors like mid, small and micro caps. Here are some funds worth tracking closely.

1) Armistice Capital

2) Baker Brothers Advisors

3) Palo Alto Investors

4) Broadfin Capital

5) Healthcor Management

6) Orbimed Advisors

7) Deerfield Management

8) BB Biotech AG

9) Ghost Tree Capital

10) Sectoral Asset Management

11) Oracle Investment Management

12) Perceptive Advisors

13) Consonance Capital Management

14) Camber Capital Management

15) Redmile Group

16) RTW Investments

17) Bridger Capital Management

18) Boxer Capital

19) Bridgeway Capital Management

20) Cohen & Steers

21) Cardinal Capital Management

22) Munder Capital Management

23) Diamondhill Capital Management 

24) Cortina Asset Management

25) Geneva Capital Management

26) Criterion Capital Management

27) Daruma Capital Management

28) 12 West Capital Management

29) RA Capital Management

30) Sarissa Capital Management

31) SIO Capital Management

32) Senzar Asset Management

33) Southeastern Asset Management

34) Sphera Funds

35) Tang Capital Management

36) Thomson Horstmann & Bryant

37) Venbio Select Advisors

38) Ecor1 Capital

39) Opaleye Management

40) NEA Management Company

Mutual Funds and Asset Managers

Mutual funds and large asset managers are not hedge funds but their sheer size makes them important players. Some asset managers have excellent track records. Below, are a few funds investors track closely.

1) Fidelity

2) Blackrock Fund Advisors

3) Wellington Management

4) AQR Capital Management

5) Sands Capital Management

6) Brookfield Asset Management

7) Dodge & Cox

8) Eaton Vance Management

9) Grantham, Mayo, Van Otterloo & Co.

10) Geode Capital Management

11) Goldman Sachs Group

12) JP Morgan Chase & Co.

13) Morgan Stanley

14) Manulife Asset Management

15) RCM Capital Management

16) UBS Asset Management

17) Barclays Global Investor

18) Epoch Investment Partners

19) Thornburg Investment Management

20) Legg Mason (Bill Miller)

21) Kornitzer Capital Management

22) Batterymarch Financial Management

23) Tocqueville Asset Management

24) Neuberger Berman

25) Winslow Capital Management

26) Herndon Capital Management

27) Artisan Partners

28) Great West Life Insurance Management

29) Lazard Asset Management 

30) Janus Capital Management

31) Franklin Resources

32) Capital Research Global Investors

33) T. Rowe Price

34) First Eagle Investment Management

35) Frontier Capital Management

36) Akre Capital Management

37) Brandywine Global

38) Brown Capital Management

Canadian Asset Managers

Here are a few Canadian funds I track closely:

1) Addenda Capital

2) Letko, Brosseau and Associates

3) Fiera Capital Corporation

4) West Face Capital

5) Hexavest

6) 1832 Asset Management

7) Jarislowsky, Fraser

8) Connor, Clark & Lunn Investment Management

9) TD Asset Management

10) CIBC Asset Management

11) Beutel, Goodman & Co

12) Greystone Managed Investments

13) Mackenzie Financial Corporation

14) Great West Life Assurance Co

15) Guardian Capital

16) Scotia Capital

17) AGF Investments

18) Montrusco Bolton

19) Venator Capital Management

Pension Funds, Endowment Funds, and Sovereign Wealth Funds

Last but not least, I the track activity of some pension funds, endowment and sovereign wealth funds. I like to focus on funds that invest in top hedge funds and have internal alpha managers. Below, a sample of pension and endowment funds I track closely:

1) Alberta Investment Management Corporation (AIMco)

2) Ontario Teachers' Pension Plan

3) Canada Pension Plan Investment Board

4) Caisse de dépôt et placement du Québec

5) OMERS Administration Corp.

6) British Columbia Investment Management Corporation (bcIMC)

7) Public Sector Pension Investment Board (PSP Investments)

8) PGGM Investments

9) APG All Pensions Group

10) California Public Employees Retirement System (CalPERS)

11) California State Teachers Retirement System (CalSTRS)

12) New York State Common Fund

13) New York State Teachers Retirement System

14) State Board of Administration of Florida Retirement System

15) State of Wisconsin Investment Board

16) State of New Jersey Common Pension Fund

17) Public Employees Retirement System of Ohio

18) STRS Ohio

19) Teacher Retirement System of Texas

20) Virginia Retirement Systems

21) TIAA CREF investment Management

22) Harvard Management Co.

23) Norges Bank

24) Nordea Investment Management

25) Korea Investment Corp.

26) Singapore Temasek Holdings 

27) Yale Endowment Fund

Below, CNBC's Seema Mody reports the number of hedge funds trading cryptocurrencies has exploded since the start of the year. Even hedge fund juggernaut Man Group is jumping on the crypto currency frenzy.

I don't know, what's that old saying, if it quacks like a duck... -:)


Tuesday, November 14, 2017

OPTrust Butts Out For Good?

Last week, OPTrust made an announcement, OPTrust to divest from public market tobacco firms:
OPTrust today announced it is divesting from the tobacco industry. By the beginning of 2018, OPTrust will be divested from all equity and fixed income investments in public companies that derive a majority of their revenue from production or manufacture of tobacco products.

"At OPTrust, we prefer to use corporate engagement – the promotion of better business practices – in our investment and ownership practices," said Hugh O'Reilly, OPTrust President and CEO. "However, there is no such thing as a safe level of consumption of tobacco products. They cause only harm. As a result, investments in tobacco do not align with our responsible investing principles."

"I'm thrilled to hear that OPTrust is implementing a tobacco-free investment policy," said Dr. Bronwyn King, Radiation Oncologist and CEO of Tobacco Free Portfolios. "This sets a new standard amongst Canadian financial institutions and will inspire others to follow suit. As an oncologist, I'm fully aware of the devastating impact of tobacco. It's heartening to see OPTrust take such a positive step, joining with the health and government sectors to address one of the greatest public health challenges of our time."

OPTrust's leadership recognizes that environmental, social and governance factors are key drivers of sustainable/long-term investment performance, and are consistent with the plan's responsible investing approach. This divestment keeps OPTrust at the forefront of responsible investing practices globally.

ABOUT OPTRUST

With net assets of $19 billion, OPTrust invests and manages one of Canada's largest pension funds and administers the OPSEU Pension Plan, a defined benefit plan with almost 90,000 members and retirees. OPTrust was established to give plan members and the Government of Ontario an equal voice in the administration of the Plan and the investment of its assets through joint trusteeship. OPTrust is governed by a 10-member Board of Trustees, five of whom are appointed by OPSEU and five by the Government of Ontario.
Now, I read this last week and I must admit, I wasn't particularly impressed.

It's not that I invest in tobacco companies directly (maybe through an ETF in the past). I never invested in tobacco stocks and never will.

In fact, I agree with that radiologist, smoking is one of the biggest health challenges of our time, and big tobacco has all but given up hope to expand in developed economies and is now focused on Africa and emerging markets (China and India in particular) where laws against smoking are laxer.

I also think it's crazy to smoke, full stop. It doesn't just put you at higher risk for cancer and heart disease, it makes a lot of diseases a lot worse (like MS and other neurological diseases), promotes osteoporosis and it makes you more prone to HPV (being vaccinated gives too many young ladies a false sense of security).

The list is endless which is why any doctor will tell you if you smoke, you're just asking for trouble. But nicotine is a powerful drug and a very addictive one which is why so many who get hooked find it hard to quit.

So, from a personal and moral point of view, I'm applauding OPTrust's decision to divest from tobacco stocks and bonds.

However, from a pension's point of view, I'm against divesting in general because once you start down this path, you're opening up Pandora's box and going down a slippery slope where you can really start questioning everything.

Exactly five years, I discussed this topic in a comment going over why bcIMC was being slammed for unethical investing:
First, let me state flat out, bcIMC is one of the best, most ethical pension funds in Canada with first-rate governance which ensures alignment of interests between their managers and stakeholders.

Second, they already take responsible investing seriously and have an entire section on their website devoted to corporate governance and responsible investing.

Third, while it's true that the Norwegian Government Pension Fund has divested from tobacco and arms-producing corporations, it too is having a hard time keeping up with its own rules on responsible investing. In February, it was revealed that Norway invested over $2 billion in 15 companies that manufacture and sell surveillance technologies - and that the government has no plans to divest investments in companies that are complicit in human rights abuses abroad.

More importantly, despite its name, Norwegian Government Pension Fund isn't a pension fund. It's the world's largest sovereign wealth fund and as such, it is in an enviable position because it doesn't have to match assets with liabilities. What it is struggling with is how to manage its explosive growth, a point Richard Milne of the Financial Times discussed in his excellent article (reprinted by the Globe and Mail),  Norway’s massive nest egg spurs investment debate.

Finally, to all those tree-hugging, vegetarian environmentalists from British Columbia fighting for social justice in their Birkenstock sandals, it's time to grow up and realize that the world is a sewer and if you push responsible investing to its limits, the first companies you should divest from are big banks speculating on commodity and food prices. How come you're not hopping mad about pensions gambling on hunger? I'm way more concerned about banksters engaging in financial speculation than tobacco and arms-producing companies. 

The reality is that once you push the envelope on responsible investing, you quickly divest from many companies in all industries, including Big Pharma which some claim thrives on perpetual sickness and slavery, as well as everyone's beloved Apple whose Chinese mega-plant, Foxconn, admits having child laborers in its factories.

Another example is the coal industry, which Harvard students demanded its endowment divest from. I said this was a dumb idea and note that with China and India ravenous for energy, coal’s future seems assured (take it from someone who got scorched last year investing in environmentally friendly Chinese solars!!!).

I'd much rather see large pension funds and sovereign wealth funds invest in these companies and use their clout to bring about important change, ensuring that labor, health, environmental and governance standards are respected while they deliver on performance.
The problem with divesting is you're allowing moral principles to dictate your investment approach and are ultimately putting your plan at a disadvantage to others who haven't imposed such constraints on themselves.

More importantly, I believe in change through strength, and in order to have strength, you need to own shares and use your power to sway corporations to make sound decisions over the long run.

Now, I realize when it comes to big tobacco, there's nothing you can do, the end product is deadly, but even there, you can force these companies to be much more careful in their marketing campaigns targeting youths in emerging countries or do something to change their behavior (forcing them to explicitly state the dangers of smoking).

At the end of the day, nobody really cares if OPTrust or any big pension divests, some other investor will take their place because they like tobacco companies and the dividends they provide.

And it's not just tobacco. Tom Steyer, the founder of Farallon Capital Management, one of the top multi-strategy hedge funds, once spoke in front of CalSTRS's board telling them to divest from fossil fuel stocks.

Mr. Steyer, a billionaire who is now retired, forced his own hedge fund to divest from fossil fuel stocks and bonds before he retired. He's now a powerful Democrat who you see on television with political ads calling for the impeachment of Donald Trump (love the part where he calls himself an "ordinary citizen").

Steyer is using his clout to promote his environmental and political agenda but again, pensions have to be extremely careful divesting from any sector no matter what Tom Steyer or anyone else thinks.

I mean honestly, think about it, cow farts are more damaging to our planet than CO2 from cars, so should pensions divest from McDonald's and other fast food burger companies? And besides, if you take a super long view of things, the Earth is screwed, at least according to Stephen Hawking.

From guns to bombs, to booze, to soft drinks and fast food, to pharmaceuticals, gambling, finance, cars if you really put every investment under a microscope, pensions would be divesting from a lot of things but would it be in their members’ best interests or that of society at large? I don't think so.

There is also the thorny issue of how do pensions divest from tobacco when it's part of an ETF? It leaves them exposed to tracking error. This too may explain why most pensions don't divest from any sector.

Morality and investments aren't always a good mix and when I read "this divestment keeps OPTrust at the forefront of responsible investing practices globally," I would say it's far more complex than you can possibly imagine. Using "responsible investing" to justify divesting is a slippery slope.

Please note, I did reach out to Hugh O'Reilly, President and CEO of OPTrust to get his take and also let him know my views. I was told he is travelling but will get back to me later this week. If he does, I will update this comment.

Also worth noting, OPTrust posted this on Twitter earlier today (click on image):


You can read more on this event, The Evolution of Canadian Pensions, by clicking here. It will take place in Toronto on Wednesday, November 22.

Below, on November 2, the Retirement Security Project at Brookings hosted an event with senior Canadian officials and American experts to discuss the Canadian retirement income and pension system and its relevance to American policy debates. OPTrust's Hugh O'Reilly and HOOPP's Jim Keohane shared their views so take the time to watch this clip.

Also, Duncan Bannatyne takes on British American Tobacco and asks them why they're targeting African children, in the face of falling smoker numbers in the west.

Of course, as the third BBC clip shows, British American Tobacco employees routinely bribe politicians and public officials in Africa to undermine life-saving health policies.

Lastly, the Wall Street Journal reports that revenues for US tobacco companies hit $117 billion in 2016, up from $78 billion in 2001. This clip discusses how the industry succeeded despite lawsuits, rising taxes and declining smoking rates.

As my mentor and friend from McGill University, Tom Naylor, used to tell us: "the world is a sewer".  Unfortunately, you can't divest from it.

Update: On Friday, I had a chance to discuss this decision to divest from big tobacco with Hugh O'Reilly, President and CEO of OPTrust, and here are the main points he relayed back to me:
  • Hugh began by telling me he too is very skeptical of divestment in general and "strongly believes in corporate engagement." 
  • He told me OPTrust believes in environmental, social and corporate governance (ESG), that he is a member that it is a member of the Canadian Coalition of Good Governance (CCGG), and that OPTrust is committed to delivering disclosure on climate change.
  • He told me that following Canadian law, OPTrust had divested from landmines and cluster bombs.
  • Importantly, on the issue of tobacco, Hugh doesn't buy the slippery slope argument. Unlike alcohol and gambling, there is compelling evidence that tobacco is highly addictive and leads to sickness and death. "No amount of corporate engagement will change the end product and its destructive effects."
  • On the issue of fiduciary responsibility, Hugh was equally adamant: "Our focus isn't just on maximizing returns, it's mainly on funded status. If we were only looking at returns, we would put a higher allocation in equities or other riskier assets." Moreover, he told that following ESG investing principles doesn't negate fiduciary responsibility, it enhances it and there are studies (ICPM) which demonstrate investing in companies with good governance is better over the long run. He cited the example of Unilever which has adopted strong ESG principles.
  • Interestingly, he told me that OPTrust isn't the first pension to divest from tobacco, AIMCo and CalPERS also divested from it (CalPERS also voted to broaden its restrictions on tobacco investments to external managers). 
  • In terms of performance, he said these investments are negligible and can be easily replaced with consumer staple companies that offer equally attractive dividends. He also said that major lawsuits against big tobacco will impact that sector's long-term profitability.
  • Lastly, Hugh called Dr. Bronwyn King, Radiation Oncologist and CEO of Tobacco Free Portfolios, a "real hero" for the work she is doing all over the world. He said he had lively discussions with her but in the end, he too was convinced divesting from tobacco was the right course of action.
I thank Hugh for taking the time to talk to me about this decision and after speaking with him, I'm starting to wonder why pensions and other institutional investors still invest in big tobacco. The world may be a sewer but we can all do our part to make it a little better one step at a time.