Fund manager Horizon Kinetics bets on land and crypto as inflation rises
We’ll send you a myFT Daily Digest email rounding up the latest Fund management news every morning.
One of this year’s best performing US fund managers is betting on property and cryptocurrencies as a way to protect its investors against rising inflation.
Horizon Kinetics, the $7bn contrarian investment firm co-founded and headed by veteran managers Murray Stahl, Steven Bregman and Peter Doyle, has three of the top 10 best-performing mutual funds this year, according to Morningstar.
“There is no turning back after the pandemic and globally there is a debt problem and it means either default or currency debasement,” Doyle told the Financial Times.
The rapid rise in debt levels over the past decade, accelerated by the vast fiscal response of governments in the wake of the pandemic, has spurred an effort by investors to inflation-proof their portfolios. This ranges from owning a mix of commodities, real estate, cryptocurrencies and quality companies with solid business models.
Property figures prominently among the major holdings of Horizon Kinetic’s top performing funds. It has stakes in Texas Pacific Land, the vast landowner, the Howard Hughes Corp, Dream Unlimited, the Canadian real estate developer, and Brookfield Asset Management. There is also a preference for owner-operator companies Icahn Enterprises and Liberty Broadband, controlled by John Malone, that are seen delivering for shareholders.
“The best long-term investors tend to have concentrated portfolios and low turnover in holdings as they let the companies they own grow and compound returns,” said Doyle.
Among the examples of their long term buy-and-hold ethos is their massive holding in Texas Pacific Land, which they have owned since the inception of the asset manager in 1994. The approach also applies to bitcoin.
An initial stake of 1 per cent in Grayscale Bitcoin Trust from 2016 has risen to a tenth of their Paradigm fund. “People should have exposure to the asset class,” said Doyle, citing how the supply of bitcoin is limited and has a scarcity premium at a time when there are concerns about currencies losing value.
Even after the recent tumble in cryptocurrencies, the asset manager has three of its funds near the top of the performance table in 2021. The Kinetics Spin-off and Corporate Restructuring and Small Cap Opportunities funds both generated gains of more than 50 per cent in 2021.
Rounding out the top 10 list, the Paradigm fund has recorded a gain of nearly 48 per cent. Over the past year their respective performances place them among the top 10 per cent of their category rivals, according to Morningstar.
A significant driver of the funds’ performance this year is a 100 per cent gain in Texas Pacific Land, a vast landowner in the state that receives royalties from oil and gas drillers in the Permian basin. The asset manager owns a fifth of the outstanding shares in TPL and expects a lack of investment in the energy sector in recent years to keep oil prices elevated. West Texas is also suitable terrain for wind and solar farms as a long transition to renewables plays out over the coming decades.
“Prospects are more attractive now than when we made our first investment,” said Doyle, referring to the firm’s first investment in 1994. TPL has become a massive holding, accounting for more than half of their three best-performing funds at the moment. The investment firm led the pressure by activist shareholders for a modern corporate structure that was announced in 2019 and Stahl is a board member of TPL.
After such a strong run of performance this year, Doyle conceded, “there is price risk in our portfolios”.
“We are not for everyone and we seek investors with a three to five-year time horizon in our funds,” he added.
“Our investment philosophy is owning companies that are managed with a long-term focus and we want investors to think the same way.”