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This Hedge Fund Manager's Worst Ideas For 2016 May Surprise You

Wayne Duggan

In a new piece for Seeking Alpha, hedge fund manager Chris DeMuth, Jr. wrote a tongue-in-cheek piece spelling out some popular trading ideas for 2016 that he believes are among the worst trades to make. Here’s a look at some of the ideas on his list.

1. Levered Long Market Exposure

DeMuth argued that a Shiller P/E of 26 and a market cap to GDP of 119 percent imply future annual returns of around zero, which is similar to the S&P 500 performance in 2015. Long investors that believe they can overcome the odds via stock picking are likely mistaken.

2. Sovereign Debt

Buyers of levered sovereign debt ETNs like DB 3X Japanese Govt Bond Futures ETN (NYSE: JGBT) and DB 3x German Bund Futures Exchange Traded Notes due March 31, 2021 (NYSE: BUNT) that are looking for safety are misguided. DeMuth noted that the yield on these investments is “more or less zero,” which is not worth the risk.

3. U.S. Dollar

At current levels, DeMuth believes that U.S. dollar indices like the PowerShares DB US Dollar Index Bullish (NYSE: UUP) are also not worth the risk in 2016.

Related Link: 5 'Bold' Predictions For 2016

4. Closed-End Fund IPOs

DeMuth pointed out that the IPOs of these funds, such as the Goldman Sachs MLP and Energy Renassnc Fd (NYSE: GER) and Duff & Phelps Select Energy MLP Fund Inc (NYSE: DSE), are typically timed to coincide with maximum demand and nearly always trade down double digits in the first few months.

5. Netflix, Inc. (NASDAQ: NFLX)

Already up over 140 percent in the past year, buyers expecting this type of performance to continue in the future will likely be greatly disappointed.

6. First-Level Thinking

If you come up with a simple, first-level market idea, chances are thousands of other people have that same idea. These types of ideas include buying banks like Wells Fargo & Co (NYSE: WFC) and selling rate-sensitive stocks like Kinder Morgan Inc (NYSE: KMI) based on the expectation of rising interest rates or buying Walt Disney Co (NYSE: DIS) because of the success of the "Star Wars" movie.

7. Do What Feels Good

In wrapping up his “worst ideas” for 2016, DeMuth explained that making trades that feel good and look smart to others is almost always a bad idea. Buying and selling based on emotions, rather than logic, is rarely the right move.

Disclosure: The author holds no position in the stocks mentioned.

Image Credit: Public Domain

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