‘There’s a lot of things that can go wrong’: A market-beating hedge fund manager shares how he’s preparing for chaos in 2024 — and explains why uranium will continue to soar

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  • Investors have enjoyed low market volatility and solid returns for most of 2023.
  • A top hedge fund manager thinks that will change next year and is preparing for pain.
  • Here’s why uranium and oil-related stocks are worth investing in heading into 2024.

Harris Kupperman, a hedge fund manager, isn’t satisfied with merely outperforming the market.

His Praetorian Capital Fund has returned 18.3% year to date after fees through the third quarter, including an 11.9% net return in Q3, compared to the S&P 500’s 11.7% gain. That’s a good year for any fund, but unlike most managers, Kupperman refuses to brag about his results.

“The performance has remained subdued, and I am frustrated,” Kupperman wrote in his Q3 investor letter in late October. “Given our focus on only owning highly undervalued securities with a low chance of downside risk, I believe we are invested in some of the markets’ strongest macro trends.” Unfortunately, those securities are still relatively rangebound for the time being.”

In a recent interview with Insider, the founder and president of Praetorian Capital Management stated that he will not celebrate until his $250 million fund outperforms the market and his competitors.

“I was up last year and the market was down, so I can’t be too upset with that,” Kupperman told Insider. “But I’m still upset.”

“We’re doing OK, I guess,” he added, “but I always want to do better than OK.” And I don’t feel like I’m doing everything I can and should be doing. I’m not sure what changes; all I know is that these things happen in cycles. And if I do my job correctly, the stocks we own should rise in value.”

Prepare for volatility and chaos in 2024

Kupperman’s belief in his hedge fund is inversely related to his economic outlook.

Despite a chorus of recession warnings since last summer, the United States has avoided a recession. Risks such as lagging growth, multi-decade high inflation, and high interest rates have faded as GDP growth defied expectations and price growth slowed — all while the labor market remained strong.

The consensus on Wall Street is that the economy will continue to grow in 2024, but Kupperman is skeptical. He expects market volatility to rise next year as global and domestic political tensions rise and inflation and interest rates remain higher than expected.

“Recent geopolitical events, along with the collapse of bonds in many developed markets, seem likely to lead to an increase in overall market volatility,” Kupperman wrote in a letter to the editor. “I believe I thrive in volatile markets.” After a long period of low volatility, I am hopeful that things will begin to pick up again.”

Kupperman responded with a long list of key risks when asked how the economy will falter.

“I just think there’s a lot of things that can go wrong,” Kupperman explained. “I mean, the United States government is quickly going bankrupt.” We always print more dollars, so you never really default; instead, you create inflation. The Fed is attempting to lower inflation, while we are running 8% deficits during a boom.”

“It’s very highly unstable,” Kupperman continued, “and I think it’s very likely that we’ll see higher inflation and higher interest rates over time.” And I don’t believe that the US economy is prepared for higher interest rates.”

The Federal Reserve’s worst nightmare is persistent inflation. The Federal Reserve of the United States has stated that it intends to keep the federal funds rate higher for a longer period of time in order to avoid a repeat of the 1970s stagflation.

Kupperman believes that because inflation tends to come in waves, investors should be encouraged by the slowing of price appreciation. If he is correct about inflation, his hedge fund will be well-positioned to outperform the market for the fifth year in a row in 2024.

Target these 2 commodities to protect your portfolio

Diversification is a top priority for many fund managers, but not for Kupperman. Instead, he makes a few bets and goes all-in on them, for better or worse.

“I do the same thing always, which is you buy cheap companies with really strong tailwinds and you hold ’em through the volatility,” Kupperman was quoted as saying. “And you try to look into the future and see what the future looks like.”

Kupperman has been convinced for the last 18 months that the future is in two commodities: oil and uranium. His theory that a supply-side squeeze would raise energy prices has partially played out, allowing his fund to survive a down market.

In an interview with Insider two months ago, Kupperman pounded the table for uranium. Since then, the nuclear energy component has gained nearly 19%, and the hedge fund manager believes it has much more room to run as power plants are forced to buy it at higher prices.

“In terms of victory lap, it feels so early — it feels like first or second inning,” said Kupperman. “These things have an exponential nature to them, where they don’t do much for a while.” They begin slowly, and then the vast majority of the movement occurs in a short period of time near the end, and you can see the rate of change accelerating as it begins to go exponential and build a little parabola.”

Kupperman went on to say, “You can’t run a nuclear power plant without uranium, so if the price goes up, these guys are going to have to pay up, and it can get quite crazy.”

Investors interested in uranium can do so in the same way that Kupperman does: by purchasing shares in the Sprott Physical Uranium Trust Fund (SRUUF) and Yellow Cake (YCA.L).

The other component of Kupperman’s commodity strategy has been less fruitful recently. Oil prices have fallen more than 19% since their late-September peak, despite rising geopolitical risks and producers’ continued supply cuts. As a result, oil-related stocks have taken a beating, including long-time Kupperman favorites Tidewater (TDW) and Valaris (VAL).

Kupperman believes that concerns about energy demand weakening during a recession are exaggerated. He believes that because global oil production is relatively low, the path of least resistance for energy prices is higher, and that there is a “good chance” that oil will reach $100 per barrel next year.

If oil reaches levels not seen since mid-2022, Kupperman believes that offshore oil services firms such as Tidewater and Valaris will regain momentum. Wall Street was impressed by the two companies’ third-quarter earnings earlier this week. Tidewater increased revenue by 39% and operating income by 16% year on year, while Valaris had lower revenue but more than doubled earnings estimates.

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