Some of the world's most successful hedge fund managers said Tuesday they have turned more bullish on the U.S. stock market against a backdrop of stronger corporate and consumer balance sheets, as well as low interest rates.
"I see a lot of reasons for economic improvement in this country," said William Ackman, who as chief executive of Pershing Square Capital Management oversees $7 billion. "We've got an improving consumer balance sheet ... great corporate balance sheets."
Ackman, who was speaking at the annual Value Investing Congress in New York, added: "The only ingredient that's missing is confidence."
Ackman, whose Pershing Square on Friday unveiled a 16.5 percent stake in department-store operator J.C. Penney Co Inc, said the environment is ripe for more acquisitions, which will increase the value of the stock market.
Ackman is not alone.
Maverick Capital's Lee Ainslie also took a bullish stance on stocks -- particularly in technology, where he said stocks are the cheapest in 20 years.
Ainslie, who oversees $11.4 billion at the Dallas and New York-based hedge fund, said that, while fundamentals have not been a significant driver of the stock market over the last few years, the stockpiles of cash on corporate balance sheets make equities compelling.
Companies are now holding more cash on their books than they have since the 1950s, Ainslie said, and the itch to put that money to work will likely spark shareholder-friendly activities.
"It is sitting there and not being used," he told the conference. "We want to make sure these companies are using cash in productive ways like buybacks, dividend payments or acquisitions."
Zeke Ashton of Centaur Capital Partners told the conference he was seeing opportunities in out-of-favor sectors such as property and capital insurers, asset managers and retailers. Hedge fund managers from India and Spain also said they saw the ability for investors to cherry pick value stocks in their regions.
"2010 to 2012 is going to be a more stable period than the last two years we just had," John Burbank, chief investment officer of San Francisco-based hedge fund Passport Capital told the conference. "It may be a lot more serene than you think."
But he warned that "calamity" may be approaching after then and said it is sometimes useful to think about the U.S. economy as an emerging market. He said about 8 percent of Passport's $3.4 billion portfolio is in physical gold — a safe haven that hedge fund investors have flocked to over the past year.
And while some hedge fund investors made a lot of money from short bets against the sour economy over the past few years, that approach may not work going forward.
Ackman, who does not have any significant short positions in his portfolio right now, said he is even having trouble finding good "short" ideas at the moment. Many of the strong short bets made over the last three years of the financial crisis, applied to business models that have now gone away, he said.
"I think at some point you'll start see the wealth effect again," Ackman told the conference.
"You've got an improving consumer balance sheet. You've got a great corporate balance sheet. You have attractive investment opportunities. The only ingredient that's missing is confidence."
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