SUMMARY OF TRADE/INVESTMENT IDEAS: Our last call to exit European real estate stocks and even go short vs. the Euro Stoxx, against general consensus, proved to be correct as the sector underperformed the European index by almost 9%. We still recommend to underweight the sector and favor hedged strategies in the sector. Real estate stocks are generally overvalued in absolute terms, and fair value to overvalued relative to interest rates, although selected long opportunities to exist. Within the interest rate sensitive sectors, banks remain a lot more attractive. We take this opportunity to mention that our best call in the sector was going long Eurobank Properties, a major Greek real estate company, at the worst of the Greek crisis last year. At the time, the company was not only net cash for more than a third of its market cap, but enjoyed a rental income yield of more than 37% and a discount to NAV in excess of 60%. A bit more than a year later, the shares have tripled and are now selling on a premium of almost 20%. Needless to say that the shares are now overvalued…
1. LONG/SHORT MACRO/SECTORAL TRADES - SHORT IUKP LN / LONG FTSE FUT / LONG GILT FUT: this is the preferred trade structure with hedge ratio 1:1:1. Other trade structures are short IUKP LN / long FTSE 1:1, and short IUKP / long Gilts 1:2 - SHORT IUKP LN / LONG EEE FP 2. LONG/SHORT RELATIVE VALUE/MEAN REVERTING PAIRS - LONG SHB LN / SHORT GPOR LN – short bias - LONG INTU LN / SHORT IUKP LN - LONG CORA NA / SHORT UN NA – long bias 3. LONG ONLY (MKT CAP > $1BN) INTU LN; SGRO LN; SBD LN; LI FP; GFC FP; FDR FP; MERY FP; FMU FP; CORA NA; AOX GR; ALLN SW; MLSR IT 4. SHORT ONLY (MKT CAP > $1BN) GRPO LN; SHB LN; DLN LN; IUKP LN 5. SPECIAL SITUATIONS NISTI NA; IGD IM