Dinakar Singh’s Axon Capital continues to travel on cruise control.
The long-short hedge fund firm is up 21.23 percent this year through September and is on track to post a double-digit rise for the fifth year in a row.
Axon has been able to shrug off last year’s bear market, when the S&P 500 fell 19 percent, and the two-year sharp sell-off in tech and internet stocks that devastated many high-profile funds.
Singh, a former Goldman Sachs partner, co-founded TPG-Axon Capital Management in 2005. He ran as much as $13 billion in 2007. But a string of losing years sent investors scurrying for the exits, reducing regulatory assets to just $481 million by year-end 2022, according to a March 2023 regulatory filing.
For investors, that was a big mistake.
The fund, headed by Singh and Kori Estrada, was up 17 percent in 2019, 73 percent in 2020, 24 percent in 2021, and 15 percent in 2022.
Axon generally invests long and short in public and private securities, including equities, secured and unsecured debt, convertible bonds, and preferred; derivative instruments, swaps, and other equity and fixed-income–related instruments; contracts for differences; mortgage-backed securities and other similar instruments; currencies; commodities; privately sourced noncontrol and control transactions; and purchases of real assets, according to a regulatory filing.
Axon continues to heavily benefit from its late-2020 bet that interest rates would go up. It had a put on a swaption, predicting that rates would rise when the 30-year Treasury was yielding under 1.5 percent, says the firm, adding that it exited this position only in recent weeks.
Institutional Investor previously reported that in a client letter in early 2021, Singh told investors that interest rates would be rising, “and massively.”
“We think sharply rising rates are both an opportunity and a risk,” he said in the letter, which was obtained by II at the time. “Ultimately, they are the key factors that will challenge soaring equity market valuations, and that is already starting to happen. Therefore, whether for offense or for defense, one must be positioned for rising rates.”
Axon also correctly predicted at the time that in late 2021 and into 2022, “travel/leisure/service companies will not just recover, but [will] likely experience several years of extraordinary business, well above typical and normal levels.”
The firm is now taking the similarly contrarian view that most if not all of the move in long-term rates has now happened.
Axon has also benefited from investments in a number of payments companies, including Global Payments, Visa, and Mastercard, among others. It has maintained that these are undervalued stocks given their direct linkage to nominal growth, which the hedge fund firm expects will remain strong.
Meanwhile, during the summer, Axon felt the market was far too expensive and would face the headwinds of rising rates and increasing political tension. So, the firm says, it significantly reduced net exposure a few months ago.
Looking ahead, Axon is bullish on several sectors that have recently been beaten up, especially travel and tourism and housing products.
Regarding travel and tourism, Axon believes consumer spending on travel will selectively remain robust but that the market is pricing in a huge slowdown, according to the firm. As for the housing products sector, Axon thinks the biggest impact of rising mortgages was already felt over the past year, as 30-year mortgage rates surged from 3 percent to as high as 7.35 percent in 2022. Now they stand at 7.88 percent, only 50 basis points higher than their previous peak last October.
“Markets seem panicked that the recent move in rates will create huge damage to housing products companies (and housing companies in general),” the company explains. “We think they are missing the point — that damage was already done last year and the recent moves are a drop in the bucket incrementally.”
