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"One of the cheapest ways to get paid hedging
stock market exposure is to short E&P stocks - the small ones
with excessive leverage," Corcelli, who is founder and managing
partner of Miami-based Alexander Alternative Capital LLC, said
at the Reuters Global Investment Outlook Summit on Monday.
Corcelli, whose fund bets on macroeconomic trends through a
range of assets, said one of his biggest mistakes this year was
investing in a highly levered energy-and-production company that
needs oil to remain above $70 per barrel to be profitable. Oil
prices have been drifting down toward that level on concerns
about global economic growth since hitting a high near $115 over
the summer.
Corcelli did not specify which individual stocks are most at
risk, but noted some large money managers have significant
positions in energy and production companies.
As Reuters reported last week, hedge funds including Robert
Citrone's Discovery Capital Management and Boston-based Adage
Capital Management LLC were both hurt by sharp declines in
energy stocks they hold.
Corcelli said he is positive on the U.S. energy market over the
long term, and is bullish on the refiner Valero Energy Corp. But
he believes the exploration industry has gotten ahead of itself
by taking on too much debt to plunge into exploration projects
that can only be profitable if oil prices stay high.
Corcelli made a name for himself by shorting bank stocks during
the financial crisis and investing in them during the recovery,
but said he is not currently shorting any securities. He
compared investing in exploration-and-production stocks on the
idea that they are undervalued to investing in bank stocks in
early 2008 after they had fallen from their highs.
"If you look at a lot of the filings for a lot of big, big money
managers, you'll see they all own some E&P play in some massive
size," said Corcelli. "Some of them are down 60 percent, 65
percent. What's to say they can't go down another 50?"
Follow Reuters Summits on Twitter @Reuters_Summits
(Editing by James Dalgleish)
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