Lee Cooperman’s Omega Advisors has released a 51-page note to investors that details the hedge fund firm’s market outlook for 2017.
One big takeaway — things are looking good for stock investors.
Here are some of the key points from the January 19 letter, which was penned by Omega founder Cooperman and the firm’s vice chairman Steve Einhorn:
- Solid S&P 500 growth. The S&P 500 can deliver an 8% to 10% return in 2017, “consisting of earnings per share growth of approximately 8% (aided by a lower corporate tax rate and added share repurchase funded from repatriated cash), a dividend yield of 2% and a slightly lower than current market P/E.”
- Low yields. Fixed-income markets in the US and developed economies have Omega expecting US shares to rise, in part because low yields will encourage investors to move to stocks.
- Rising interest rates “should not pose a problem for US shares.” Among Omega’s reasoning: “A large portion of the lift in bond interest rates to be experienced this year will stem from expectations of more confidence in economic growth and a lift in the bond market term premium/less safe haven flow rather than from a lift in inflation expectation…these reasons for a bond rate increase should not be problematic to the S&P 500 P/E.”
“If our S&P 500 [earnings per share] and bond rate discussions is correct, investors should likely have their ‘cake and eat it too’ in 2017 — well above average earnings growth without an attendant problematic lift in bond interest rates,” Cooperman and Einhorn added in the letter.
A copy of the note, which also detailed why 2017 will be a great year for active managers, was reviewed by Business Insider.
Last year, Omega’s flagship fund returned 7.7% net of fees compared to 5.5% for the HFRI equity hedge index, according to the letter. This year through January 18, the fund was up 2.1%, according to the letter.
The Securities and Exchange Commission filed charges against Omega and Cooperman last year with allegations of insider trading. Cooperman has said he is innocent and plans to fight the charges in court.
Omega currently manages about $3.5 billion, according to a person familiar with the matter, and has faced outflows following the charges.