President Donald Trump said on Wednesday that Washington was in active discussions with Beijing about resolutions to the trade war which threatens to tip the U.S. and global economies into a recession. However, a spokesperson for the Chinese foreign ministry denied Trump’s claim, saying that China and the U.S. haven’t engaged in any negotiations about tariffs, “let alone reached an agreement.”
Amid all this back-and-forth, hedge fund managers are moving swiftly to position their funds for virtually any outcome as volatility continues to sweep the markets. For example, Stephen Yiu of Blue Whale Capital sent a letter to investors last week explaining what he’s doing about the tariff situation.
Read hedge fund letters here
Tools for active managers
He noted that active managers have four tools at their disposal
- Do nothing
- Sell
- Buy something new
- Buy more of something they already own
In response to the volatility stemming from the policy shifts in the White House, Yiu has utilized all of these tactics across different parts of the portfolio.
For example, Blue Whale has since exited Meta Platforms. Although Yiu remains encouraged by the company’s artificial intelligence investments, he pointed out that its entire profitability comes from digital advertising, an area he believes will face pressure if the global economy slows.
Yiu also cut their exposure to Nintendo after the announcement of the Switch 2 console. He noted that the company’s stock rallied on the news, but he’s concerned about the £450 price alongside tariff uncertainties, which he believes calls into question future demand. Thus, Yiu took advantage of the rally to slash Blue Whale’s exposure.
Areas of conviction
On the other hand, he remains convicted on several names that continue to do well. Blue Whale’s position in Leonard has generated sizable returns on the back of geopolitical tensions between the U.S. and Europe, which have raised the possibility of additional defense spending in Europe. Leonard stock has soared 70%, supporting Yiu’s thesis.
Additionally, Broadcom announced plans to repurchase $10 billion worth of shares just before Trump’s announcement that he was pausing the tariff implementation for 90 days. Yiu sees that as a sign that the company is confident about its future, also reinforcing his conviction in the chipmaker.
He also added to Blue Whale’s position in NVIDIA, as he believes the broader selloff has created certain opportunities. Yiu doesn’t expect a material slowdown in the pace of AI development, so he took advantage of the drawdown in NVIDIA’s stock price, which brought its valuation to a price he believes offers an attractive value over the long term.
Remaining cautious but optimistic
In spite of the moves Yiu has made, he’s still cautious about the broad-based economic environment. He believes certain stocks look oversold compared to their earnings potential.
However, he’s not hurrying to pour more capital in without further clarity on the situation. Currently, Blue Whale is holding 5% of its portfolio in cash, which Yiu said they may deploy opportunistically when earnings season begins.
