Mark Dampier: A fund to be in if it all goes horribly wrong
Friday 16 August 2013
The great British summer has been just that, with sporting victories and some fantastic weather. This has coincided with improving economic data, suggesting that the UK could finally be on the road to recovery.
So far we have seen positive GDP data and far better manufacturing figures, and the service sector is alive and kicking. House prices have also been rising, although we should be wary as this could mainly be good news for politicians who will be mindful of the impending 2015 election. However, on the whole, everything in the garden is beginning to look a little rosier; there are now even calls from some quarters for an increase in interest rates, even though the Bank of England has said it isn't go to happen.
At this stage I always feel it is good to speak to a fund manager with an opposing view. I could have gone immediately to someone like Neil Woodford who does not own a single bank stock and as yet has shown no intention of doing so. That tells me much of what he thinks of the state of the British economy.
James Harries, co-manager of the Newton Real Return fund, is even gloomier, I suspect.
Newton's house view is that we remain in a challenging world of excessive debt, experimental monetary policy and a misallocation of assets. Our problems have not gone away and Newton believes growth remains anaemic at best. Indeed, it believes we may yet see new lows on bond yields.
Mr Harries envisages no sharp move in the yield curve and feels short-term interest rates are not going anywhere – a view I share. This, though, is quite a contrarian view on bonds, which most commentators believe are in a bubble.
We are now at an interesting juncture in the economy, according to Mr Harries. He expects "there will be a shattering realisation at some point that QE does not work". Quantitative easing has undoubtedly distorted the prices of assets – precisely those assets in which we are supposed to be investing yet have instead become a tool of government policy.
Pricing distortions can lead to a misallocation of capital and potentially lower returns on equity – which is why Mr Harries warns that QE will have serious consequences.
This view explains why the fund has underperformed the recent rally. Mr Harries accepts that its conservative nature will make it look pedestrian if things are actually getting better. But if the US does not recover as strongly as some believe, and if China also disappoints, a better investment opportunity could arise at a later date.
"Boring", well-financed equities are favoured, but Mr Harries dislikes unattractively valued financial assets. The fund has 58 per cent in equities, so you might expect it to have performed better than it has.
This has been offset by a 17 per cent index option hedge. In addition, a further 25 per cent is invested in fixed interest, and nearly half of this portion is held in Australian and Norwegian government bonds, with most of the remainder in high-yield corporate bonds. About 11 per cent is held in cash alongside a small amount in gold.
While holding roughly 10 per cent in high-yield corporate debt may look odd given his bearish stance, financial bonds and long duration have been avoided. Instead he is happy to take senior secured credit risk in industrial bonds, for example.
Mr Harries describes the fund as "robust to a variety of outcomes". It is a relatively concentrated portfolio and perhaps should be looked at as an insurance policy for things going horribly wrong.
What are the counter-signals to suggest Newton is wrong? Mr Harries lists what would knock down his case of an anaemic recovery: rising real wages in the US; increasing money supply; paying down debt; or signs the major economies can stand on their own two feet, which would mean the withdrawal of QE and rising interest rates. Presently, none of these looks likely to Mr Harries.
This is a fund for the cautious investor who is looking to shelter and limit the volatility of their capital We are currently undergoing the biggest experiment ever in terms of monetary and fiscal policy. In reality, no one can predict the final outcome. In my view, it is well worth having a fund such as this within your portfolio in the event things do take a turn for the worse.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial advisor and stockbroker. For more details about the funds included in this column, visit hl.co.uk/independent
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Simon Read: Timeshare owners accuse Macdonald Resorts of land grab
Five Questions: Changes to car tax discs
How to save money: UK is crashing down the European league table for putting money away
A student's guide to financial survival: You don't have to drown in debt at university
Bargain Hunter: Win a new iPhone 6
- 4 Iranian blogger found guilty of insulting Prophet Mohammad on Facebook sentenced to death
- 5 New Tricks: Dennis Waterman to leave the show after a decade of crime-solving
Scottish independence referendum: A nation divided against itself
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
Plebgate MP Andrew Mitchell called officer a 'little s**t', claim court documents 'exposing ex-Chief Whip's 'record of abusing police'
Archbishop of Canterbury admits doubts about existence of God
iJobs Money & Business
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...
Day In a Page
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize