How Five Money Managers Are Playing Swings in the Market

U.S. stocks have been increasingly volatile lately, with the S&P 500 rising or falling by more than 1% almost every day in the past few weeks. Treasurys have rallied, with the 10-year yielding about 1.70%.

These assets aren’t alone.

Nearly every market has seesawed this August after a trade dispute between the U.S. and China kick-started a downturn in stocks. On Monday, the S&P 500 lost 1.2%. Then it reversed Tuesday and staged a 1.5% rally. On Wednesday, the market declined again with the S&P 500 off 2.9%.

Some investors are seeing an opportunity in the action. Here’s how some large money managers are playing the market:

Jos Shaver

manages a $1.3 billion portfolio of stocks for his New York hedge fund, Electron Capital Partners LLC.

Mr. Shaver says the difference between now and other recent bouts of volatility is the decline in bond rates. He says that his concern is that with this type of volatility, more investors start worrying about the possibility of a recession.

“As a result of low rates, I think we’re going to be in a much more volatile environment,” he said. “We’re on this knife edge.”

Mr. Shaver invests in utility and infrastructure stocks, typically viewed as a haven, so he hasn’t had to change his strategy. However, lower rates have pushed some larger investors to evaluate purchasing an entire company in his sector, which can create a potential quick return.

“The stocks we’re long are the same ones that they’re taking private,” he said. “So we make a big premium.”

Mr. Shaver said his fund owned shares of

El Paso Electric
Co.

, which an infrastructure fund of J.P. Morgan Investment Management Inc. agreed to acquire in June. The deal was expected to pay shareholders a 17% premium.

That said, he is concerned that too many other investors have plowed into certain stocks within the sector.

“People are paying up unbelievable amounts of money,” he said. “They’re crowding in.”

Marc Lasry, chairman, chief executive officer and co-founder of Avenue Capital Group


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Marc Lasry

is one of the best known hedge-fund managers in the country. His Avenue Capital Group runs more than $10 billion, and Mr. Lasry is an owner of the Milwaukee Bucks basketball team.

Mr. Lasry focuses on debt investing. He says his strategy is less affected by the heightened volatility and that he has found better deals in Europe and Asia in recent years.

“If you want to generate an excess of 10% [returns], you have to take a lot more risk. You’re going to go into different asset classes, different jurisdictions, different countries,” he said.

“There are a number of situations you can invest in where you can buy the bonds at $80 to generate 10% plus [returns],” he said. In Asia, similar bonds go for “$50 or $60.”

On geopolitical issues, he’s focused on any potential trade war and on the Twitter account of President Trump.

“You have to deal with a president who is constantly making tweets that have effects on the market,” he said. “There’s a perception that everything is fine, and then that perception is shattered when the president announces he’s going to change the tariffs.”

Greg Staples,

head of fixed income for the Americas at DWS Group, has positioned the bond portfolios he runs more defensively.

In some portfolios, Mr. Staples has bought more A-rated debt—which tends to be safer—and sold BBB-rated bonds—which are more risky or likely to default, according to ratings firms. In high yield debt, his team has purchased more double-B and single-B bonds and moved away from lower rated, triple-C debt.

In June, he had expected thinner-than-usual trading in the summer and limited monetary easing by the Federal Reserve to add to market swings.

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“We’ve been moving up in quality over the last month or so in the anticipation that things could be a bit bumpy,” said Mr. Staples, who oversees a group managing roughly $140 billion across U.S. active fixed-income and cash strategies.

On a more geopolitical basis, he is staying closely attuned to the protests in Hong Kong while also monitoring bonds of energy and natural resources companies that could be impacted by trade tariffs.

Despite the volatility, Mr. Staples said the swings aren’t as pronounced as those that occurred at the end of 2018. “The selloff has been pretty orderly in high yield with not a massive amount of panic trades.”

Hugo Rogers,

who oversees around $6 billion as head of investments at private bank Deltec International Group, believes markets will remain volatile into the second half of the year amid concern over slowing global growth and trade issues.

“The global economy is vulnerable, and now you’re starting to see catalysts emerge to expose that vulnerability,” he said.

He has recently bet on a decline in the shares of

Apple
Inc.,

a company he believes could be caught in the escalating trade conflict between China and the U.S., which is “morphing into a new, dangerous phase,” he said.

Mr. Rogers began gearing up for volatility earlier in the year when he reduced his fund’s position in stocks and beefed up holdings of gold and Treasurys, two assets that are popular destinations for nervous investors. Year-to-date gains in gold have recently overtaken those of the S&P 500, as the stock market’s recent swings boost the haven metal’s appeal.

Katina Stefanova

manages about $200 million at her New York hedge fund, Marto Capital. Ms. Stefanova said she had expected a selloff in stocks and other riskier assets this year.

In recent months, she said she bought gold as protection. Among other investment decisions, she also sold her stock positions.

Ms. Stefanova expects a recession to occur in the next year and a half and the Federal Reserve to cut interest rates further. That would prompt her to buy assets like gold and silver, she said.

“In this environment, it’s important to have a diversified portfolio and not chase the highest level of returns,” she said, “because there is a much higher level of uncertainty.”

Write to Rachael Levy at rachael.levy@wsj.com

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