One of the most fascinating aspects of the investment business is manager commentary in the form of hedge fund letters. Sometimes these letters take the form of an aggressive rant, or a "teach-in" session of some strategy the fund is employing (see: Michael Burry @ Scion), or simply a commentary on what's keeping the hedge fund manager up at night. I try to read as many of these letters as possible (hint: send me more letters). I also believe in a post-Madoff world, increased disclosure of underlying investments can generate investment ideas for your own portfolio.
"In summary, while the near-term case for uranium equities has been significantly weakened as investors take a wait-and-see approach, we believe that in the long-term nuclear power will provide as essential component of the world's energy consumption. Therefore, the Fukushima accident is unlikely to cut short the nuclear power growth story the way Chernobyl did twenty-five years ago, because even in the worst case scenario Fukushima would remain a narrowly localized problem with limited radiation beyond the immediate area surrounding the plant. Additionally, twenty-five years ago, growth in nuclear power was driven mostly by societies in Western Europe and North America, while future growth is expected to come from emerging markets such as China, which has a more centralized decision making process and a very large population with rapidly growing needs for electricity. China, Russia, India, and South Korea account for about 75% of the projected nuclear build-out and those countries have a constructive view on nuclear power."
"Equity-market valuation is attractive. However, valuation by itself does not bring higher share prices. We are all aware of, and have experienced, value traps. There almost always needs to be a catalyst to activate market undervaluation. We are constructive on U.S. shares because we believe that there are several important, significant, and long-lasting catalysts to activate share undervaluation. These catalysts include:
- A self-sustaining U.S. economic expansion that should last at least as long as the average post-war expansion of 60 months.
- An economic and inflation cycle characterized by a low level of volatility.
- A very sweet profit cycle.
- A significant allocation shift to equities from fixed income by individual and institutional investors."
"We believe that the RMB will continue to appreciate at a mid to high single-digit rate each year for the foreseeable future. To maintain Beijing's target for growth, acceptable levels of inflation, and to prevent an excessive correction of home prices, we believe China must develop independent monetary policy. Over the long run and as evidenced by their recently released five-year plan, China intends to rebalance its economy from export to consumption. This should drastically reduce China's trade surplus, as suggested by Yi Gang of the People's Bank of China in October 2010. Gradual appreciation of the RMB helps China move judiciously in that direction."