Investors put faith in traditional US retailers
Soros and Einhorn among those taking small stakes in store operators battling Amazon
Investors including George Soros’s family office and David Einhorn have bought tentative stakes in traditional US retailers, in early signs of a contrarian bet on the beleaguered sector as it battles against the onslaught of Amazon.
Several US retailers that have seen their valuations slide on concerns about the threat of online competition have surged in value since the start of the year. Shares in Target have gained 15 per cent while JC Penney are up by 28 per cent, outpacing a 2 per cent gain for the S&P 500.
David Einhorn’s Greenlight Capital purchased a small position in JC Penney of about 2 per cent of its shares in the fourth quarter, according to US regulatory filings, while Soros Fund Management took a small stake in Target. Element Capital, another hedge fund, opened a starter position in Macy’s.
While shares in certain retailers have started the year strongly, few have managed to outpace the 27 per cent gain for Amazon, which has been the third best performing stock in the S&P 500. Meanwhile other retailers, such as Victoria’s Secret owner L Brands, have continued to tumble, losing 20 per cent since the start of the year.
Many retailers are being heavily bet against by other hedge funds, with large amounts of their shares having been borrowed to sell short, although this has fallen over recent months. More than 40 per cent of JC Penney shares were out on loan in December but this has fallen to 27 per cent, according to Markit data. Short interest in Macy’s has almost halved from 19 per cent to 11 per cent over the same period.
Michael Arone, chief investment strategist at State Street Global Advisors, says retailers are benefiting from signs of strength for the US consumer. “Unemployment is low, wages are starting to accelerate and lower taxes for individuals mean more take-home pay. University of Michigan’s most recent survey of consumers also put sentiment at the second highest point since 2004.”
While the spectre of rising inflation has worried the bond market and knocked stocks off their January highs, Mr Arone said that could be a positive signal for retailers.
“An improvement in pricing power has been a missing ingredient for retailers,” he said, pointing to the latest consumer price index data, which included an uptick for apparel prices.
This week investors will be given further insight into how several large US retailers are faring as Macy’s, Nordstrom and Kohl’s all report earnings.