Trends Watch: Market Neutral Investing

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Jason Gans, CEO, Third Level Capital.

What is your outlook for market neutral investing?

We believe that the macro backdrop for the economy will create volatility for equity beta. The main driver of this volatility is the Federal Reserve, which is entering a monetary tightening phase in response to inflation. In part, inflation is occurring at the corporate level in input costs, labor and freight, factors which in turn are placing pressure on company margins in a manner that could impact overall stock prices. If we identify those companies which can maintain market share while raising prices to consumers, we can create alpha within our strategies. Overall, this approach gives us more confidence in our market-neutral strategy.

Where do you see the greatest opportunities and why?

Our firm covers U.S. stocks in consumer-packaged goods (CPG), health and personal care (HPC), retail and leisure. We believe there are many opportunities to capture alpha within this space.  The overall equity market volatility should create greater dispersion between individual companies. The greater equity dispersion will create opportunities to pick winners and losers in this market

What are the greatest challenges you face and why?

Our job as investors is to process and synthesize the wealth of information available to all market participants. Separating the signals from the noise within a 24-hour news paradigm is a growing challenge.  To help us manage this risk, we maintain a very concentrated portfolio.  Currently, we have less than twenty companies in our portfolio.

What keeps you up at night?

The thesis for each of our strategies remains the key to our success. This thesis is evaluated daily as new data is analyzed and incorporated.  We recognize that externalities will certainly arise, such as buyouts, equity offerings, mergers, and new government regulation.  Although external events are hard to predict, we do attempt to weigh and incorporate those risks into our evaluation process.

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.