“Certainly, passive investing is leading to bubbles in certain stocks,” he says.
Ironically, many of the long short funds in the Morningstar table do not currently hold any short positions in shares. King says passive investing is one of three factors working against fund managers trying to short stocks, which involves borrowing stock for a fee and selling it short in the hope of buying it back after it falls. It is equivalent to leveraging a portfolio.“Firstly, low-interest rates mean that stocks can trade at very high multiples and fundamental valuation perhaps becomes less important,” he says.
“We went aggressively long in the mining sector 12 months ago – we’ve actually been building that over the last few years,” he says. A few of the best performing stocks in the Atlantic fund have been lithium miners Pilbara Minerals, Ioneer and Liontown. Quest bought into three floats during the year – Siteminder, Ventia and Qualitas, two of which did well.