Fairfax Financial Holdings Ltd., the holding company run by investor Prem Watsa, unloaded its long-term bond holdings and reduced short positions on stocks, adding to a bet that President Donald Trump will spur U.S. economic growth.
Fairfax sold its California debt and long-dated U.S. treasuries to lower the average term in its bond portfolio to one year from as long as 30 years, and closed its short bets in the Russell 2000, S&P 500 and S&P/TSX 60 equity indexes.
Closing the short bets contributed to a $2.66-billion investment loss in 2016, according to a fourth-quarter financial statement, and left the Toronto-based insurer with $10-billion in cash and short-term investments at year-end, which Mr. Watsa said he'll deploy into stocks "over time."
"Why did we make these dramatic changes?" Mr. Watsa said on a conference call with analysts Friday. Because the new U.S. administration's proposed policies have "the potential of boosting economic growth significantly in the United States."
Mr. Watsa's betting that Trump will fuel U.S. economic growth and boost individual stocks, citing his promises to cut corporate taxes to as low as 15 percent, increase infrastructure spending, and roll back regulations including Obamacare and the Dodd-Frank Act. Watsa, who called the election of Trump a "surprise" that prompted his investment bet, cut his equity hedge positions in half after the U.S. election.
Mr. Watsa also said that equities "are not cheap" and that individual stocks, not necessarily the market as a whole, will do well.
Fairfax fell 3.1 per cent to $611.59 in Toronto trading, the biggest one-day drop in two months.