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NEW YORK - Barton Biggs, the hedge fund manager who sold half his equity holdings at the start of July, said that the signs the US economy will avoid a recession spurred him to build the stakes back up.
Biggs, whose Traxis Partners LLC gained 38 percent in 2009 when he bought shares as the Standard & Poor's 500 Index fell to a 12-year low, said bets that stocks will advance make up 75 percent of his fund, up from about 35 percent three weeks ago. Biggs said on July 2 that concern governments around the world would curtail stimulus measures too soon led him to sell almost all of his US technology holdings.
"I've definitely changed my mind to the degree of risk out there," Biggs said. "Economic data around the world in the last 10 days to two weeks has turned more positive. It has exceeded forecasts almost without exception. The odds of the world slumping into a significant slowdown has diminished."
The S&P 500 has rallied 8.2 percent this month after more than 83 percent of companies reporting quarterly results topped analysts' estimates and government reports showed US building permits and factory production exceeded forecasts from economists. Biggs said the largest US companies will benefit as the economy recovers, naming Procter & Gamble Co, Deere & Co, Caterpillar Inc, Cisco Systems Inc and Microsoft Corp.
Decent environment
"The environment is fairly decent right now and there are opportunities," said Biggs, whose fund gained almost three times the industry average last year, according to data compiled by Bloomberg and Chicago-based Hedge Fund Research Inc. "You are where you are and it's a new day."
P&G based in Cincinnati climbed 4.2 percent this month after the world's largest consumer products company said on June 25 that it aims to reach 1 billion more consumers. Peoria, Illinois-based Caterpillar gained 17 percent as the world's largest maker of construction equipment raised its earnings forecast on higher demand in developing countries for mining and rail equipment.
Microsoft, based in Redmond, Washington, rallied 13 percent in July as the world's largest software maker posted record fourth-quarter revenue on July 23 after the most successful debut of its flagship operating system.
IMF forecast
The International Monetary Fund (IMF) boosted its forecast for 2010 global growth to 4.6 percent from 4.2 percent on July 8 after a stronger-than-expected first half. That would be the largest gain since 2007.
Biggs's reversal reflects the challenge facing professional investors trying to gauge the global economic outlook after concern Europe's debt crisis will spread sent the S&P 500 down 13 percent in May and June.
Stocks in the US had fallen nine times in 10 days when Biggs said he'd cut his holdings on July 2. The Labor Department said that day that private employers added 83,000 people to payrolls in June, compared with an estimate of 110,000 in a survey of economists by Bloomberg.
"I'm not putting my money into anything," Biggs said at the time. "I've taken basically all of it out in the US, and we had a broader exposure to consumer stocks and just, in general, I've reduced my net long position by about 30 or 40 percentage points."
The S&P 500 advanced during the next six days, gaining 7.1 percent through July 13 as investors speculated corporate profits would top analysts' projections and metals increased.
Hedge funds, endowments and pensions pushed equities up to 68 percent of their holdings in July, the highest level in 15 months, from 63 percent in April, a Citigroup Inc survey showed.
Institutions are preparing for a rally, according to Citigroup's questionnaire from 120 respondents among those groups. Fifty-four percent said US equities may gain up to 20 percent, compared with 50 percent in the last reading.
Hedge funds lost an average of 0.9 percent in June and 2.6 percent in May, according to the HFRX Global Hedge Fund Index, as the European debt crisis triggered declines in stocks, the euro and commodities.
Profits among S&P 500 companies may rise an average 34 percent in 2010 and 17 percent in 2011, the fastest two-year growth since 1995, according to forecasts tracked by Bloomberg.
The S&P 500 trades at 14.9 times annual earnings, compared with an average of 16.5, according to data compiled by Bloomberg since 1954. The index is cheaper relative to estimated earnings for the next 12 months, with a multiple of 11.7, the data show.
Bloomberg News
