- Justin Walsh is a Viking Global portfolio manager focused on consumer and industrial investments.
- Walsh spoke Monday at a conference put on by Harvard Business School.
- He touched on how he thinks about different market risks and his favorite luxury stock.
Compared to some of its Tiger Cub peers, $48 billion Viking Global's highs and lows have been more muted.
The manager prides itself on keeping an active short book and hedging. Although its 2023 performance did not hit the same highs as peers like Tiger Global and Coatue, its returns are over their high-water mark after a rough patch for the growth funds in 2022. Listening to one of the Stamford-based firm's portfolio managers explain how the firm is hyperfocused on risk gives you a good idea of why.
Justin Walsh, a portfolio manager running the industrials and consumer books, told the crowd at a Harvard Business School Investment Conference Monday he focuses on picking winners and losers, not betting on which way the market will go. This fundamental investing style doesn't guarantee a fund won't get caught up in market volatility, though, and he broke down one risk he's watching.
Massive multi-strategy funds like Citadel and Millennium are increasingly dominating the hedge fund industry, but these platforms are "designed to extract a smaller amount of alpha that is much less risky and then add a lot of leverage to it," Walsh said, according to a recording obtained by Business Insider. Viking declined to comment further.
"Lots of leverage can be a good thing when things are going well, but usually it's behind a lot of problems," Walsh said.
"I am concerned that if and when some existential or exogenous event does happen, all the leverage-driven strategies will be forced to degross," he said, and sell out of large positions fast, moving stock prices severely despite the businesses being the same.
"Those are the things that I think about in how we manage the portfolio and induce me to try to be more prudent even when I don't necessarily see the fundamental risks on the horizon," he said.
Walsh is bearish on the growth prospects of his two sectors, noting that while he doesn't expect a recession, a slowdown in consumer spending seems likely. This makes it even more imperative to sort the haves from the have-nots, he said, and one stock he likes in the consumer space is Richemont, the Swiss luxury conglomerate that owns Cartier.
Viking's research shows Richemont's brands are on par with consumers with those of LVMH and Hermes, and "they are gaining an increasingly large share of the luxury spending pie," he said.
Walsh believes the stock is undervalued right now, and once the market catches up, he may look to sell and find another hidden gem. The stock is up close to 14% this year through Friday morning, far outpacing the S&P Global Luxury index, which has lost 1.7% in 2024 so far.
"It's not necessarily a stock we would always own. We would own it at the right price," he said.
"If the stock went up 25% tomorrow, we would probably sell it absent any other fundamental change in the business."
The firm's flagship long-short fund was up 5.8% in the first quarter, a person close to the firm told Business Insider, and its long-only fund returned 10.1%.
