By Svea Herbst-Bayliss
(Reuters) - President Donald Trump's handling of the coronavirus outbreak early this year was "an incredible gift" for investors because it kept markets stable long enough for some to protect their portfolios, Axon Capital co-founder Dinakar Singh told investors this month.
Trump has justified his public assurances that the virus will quickly go away by arguing he needs to be "a cheerleader" for the United States to avoid creating "havoc and shock." The United States has the highest number of confirmed coronavirus infections and deaths in the world.
"We simply never believed 'what happens in China stays in China,'" Singh wrote in a letter to investors last week that was seen by Reuters. "Trump talking down COVID-19 risk gave investors an incredible gift -- it kept markets resilient much longer than they should have, and enabled us to ensure our portfolio was sensibly positioned."
The White House did not immediately respond to a request for comment.
Axon, a 15-year-old hedge fund which oversees roughly $1 billion, gained 24.3% in the first half of the year, thanks to bets on technology giants, managed-care stocks and Japanese companies, according to the letter. In the last days Axon extended gains and is now up 30%.
Axon is among a small number of firms beating the average hedge fund, which lost 3.5% in the first half, according to Hedge Fund Research data.
Singh said he was able to "bulk up" some hedges early in the year by "adding some volatility protection." That weighed on "performance in January and early February, but has helped ever since."
The novel coronavirus first emerged in China last December. The first U.S. case, in Washington state, was reported in mid-January, and through late February U.S. cases reported remained low. During that period Wall Street stocks continued to rally, with the Nasdaq and the Dow posting record highs on Feb. 19.
And after the benchmark S&P 500 (SPX), the Dow Jones Industrial Average (DJI) and the Nasdaq (IXIC) all suffered double-digit declines in the first quarter, all three marked their biggest quarterly percentage gains in more than two decades in the second quarter.
The S&P was still down on the year at the close of the first half, but the Dow and the Nasdaq both closed out the period higher.
For Axon, bets on Google owner Alphabet Inc (O:GOOGL), Facebook Inc (O:FB), health insurers Centene (N:CNC) and Humana (N:HUM), medical equipment maker Olympus (T:7733), and short bets against retailers, including Gap (N:GPS) and Kohls (N:KSS), all paid off. Olympus is up 20.66% this year.
A former Goldman Sachs (NYSE:GS) stock picker, Singh founded Axon with capital from private-equity firm TPG in 2005. The fund's assets peaked at $13 billion in 2008.
After the stock market's plunge in March and subsequent recovery, Singh now worries about a rise in interest rates. "All investors should think seriously about buying 'protection' against structural rise in interest rates," he wrote.