Mark Dampier: Despite sovereign debt drag Littlewood still plays it short
Friday 21 December 2012
William Littlewood's return to the investment world after a nine-year gap in May 2009 caused a stir.
He was a star performer of the 1990s managing Jupiter Income, and the eagerly awaited Artemis Strategic Assets Fund attracted a lot of attention, deservedly so in my view as Mr Littlewood is a first-class manager.
Yet the fund has failed to shine. While it certainly hasn't been a disaster, rising by around 38 per cent, the aim is to beat both the FTSE All-Share index and cash over any three-year period. During this time the All-Share is up 56 per cent with dividends reinvested.
To be fair, these twin objectives are quite tricky to achieve. It essentially means the manager has to take a very flexible approach to the level of risk in the fund, sheltering capital in turbulent markets and taking a more aggressive approach when they are rising. Therefore timing and strategy are extremely important. As such, the fund offers Mr Littlewood considerable scope to follow his views. He can invest in shares, bonds, commodities and currencies, which the manager believes will increase in value. The fund can also use holdings that increase the fund's value if they fall in price, known as "going short".
While flexibility can be a good thing as it gives a manager various ways of making money, it also means there are more ways of losing money.
Although many parts of Mr Littlewood's portfolio have fared well, one area has been a particular drag. Since launch he has strongly believed that sovereign debt, particularly in Western markets and Japan, was vastly overvalued and that inflation would cause falling bond prices. He has therefore shorted UK gilts and US treasuries as well as Japanese government bonds. I argued with him that it was far too early to short sovereign debt, even though I thought he may be right in the longer term. Sure enough, these positions have been costly and he would have beaten returns from the FTSE All-Share since launch if he hadn't taken them.
When I caught up with him recently I found he is as adamant as ever about shorting bonds. His view is that when bonds do sell off it will happen very quickly and many people will miss the trade. On Japanese bonds he remains particularly bearish as they are predominantly held by aging, private investors. When they begin to sell to release capital he believes few other investors will be interested in yields of 0.7 per cent on an investment in an expensive currency. If we are, as Mr Littlewood believes, near the crunch point, the fund is very well placed.
As for equities, he thinks some of the classic defensives have got a little expensive and has moved more into the US with the UK weight falling.
The fund's currency exposure is also interesting with long positions representing 30 per cent of the fund in the Singapore dollar, 12 per cent in the Taiwanese dollar, 11 per cent in the Hong Kong dollar, 11 per cent in the Malaysian ringgit and 17 per cent in Norwegian and Swedish krone. There are also short positions in the Australian dollar, Japanese yen and the euro. Overall the fund is set up to benefit from a decline in sterling.
So how does this fund fit into a portfolio? I have a large weighting in my own self-invested personal pension because although I haven't shared Mr Littlewood's short-term view, I do share his longer-term strategic thinking. At some stage I think sterling will come under pressure, so his overseas currency weightings will start to work well and at some stage sovereign debt will surely go into reverse.
This is a fund for patient investors who think the problems caused by indebtedness around the world will eventually be solved by inflation. The question as ever is one of timing, so I have this fund as part of an insurance policy if things go wrong. I still consider Mr Littlewood to be one of the best fund managers I have met over my 30 years in the industry, so if you do own the fund I think it's worth holding onto. For those who don't, it's worth considering, particularly if your outlook turns more bearish on sterling.
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 www.hl.co.uk/independent
Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk
Investors told to travel the world in the search for higher returns
Is having individual billionaires good or bad for a country's economy?
Peer-to-peer lending rates put Nisas to shame
The most expensive cities in the world 2015
Is there a connection between luxury student accommodation and high levels of debt?
- 1 Game of Thrones season 6: Jon Snow theorists believe Ned Stark's son may have a twin sister
- 2 Artist takes LSD, draws herself over different stages of the 9-hour trip to show its effects
- 3 Miley Cyrus address Robin Thicke VMA controversy: ‘He wanted me as naked as possible, but I got the heat because I’m a woman’
- 4 iPhone 6s camera: features to include 4K video camera and flash for selfies
- 5 A pint of water every day is the key to losing weight, scientists say
Dresden riots: Protesters in Germany attack refugee buses shouting 'foreigners out'
France train shooting: US soldiers speak of the moment they stopped gunman and 'beat him until he was unconscious'
Labour leadership: Jeremy Corbyn accused of 'deluding' young supporters with 'claptrap'
'Women only' train carriages: Jeremy Corbyn unveils radical move to tackle public harassment
Black holes are a passage to another universe, says Stephen Hawking
Iain Duncan Smith 'should resign over disability benefit death figures', says Jeremy Corbyn
iJobs Money & Business
£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...
£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...
£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...
£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...
Day In a Page
In a sandbanks location, moments from the beach, this three-bedroom apartment has a large open-plan living area and a south-west facing balcony.
This four-bedroom home has an annexe accessed from the side of the house, with potential for improvement and conversion subject to the necessary permissions.
In the heart of the hamlet of Wardley, this five-bedroom period home offers countryside views and a stylish interior, with original features and open fireplaces.
Offering countryside views and landscaped gardens, this three-bedroom Grade II-listed lodge has a spacious conservatory and a large cellar that could serve as a workshop.
Set in approximately 1.5 acres, this four-bedroom home comes with a second, detached property that's currently used as an annexe.
In the hamlet of Newchurch, this former parish church is now a four-bedroom home complete with clock tower and eyrie.
Offering scenic views from a large balcony and sun terrace, this four-bedroom home has a wraparound garden and a heated swimming pool.
Offering views across the Humber and East Yorkshire Wolds from a glass panelled balcony, this four-bedroom barn-style home befits a life of leisure.
This four-bedroom home offers versatile accommodation with annexe potential; features include a hot tub, sauna and Norwegian BBQ hut.
Well-located for schools, colleges and the town centre, this contemporary thatched cottage offers flexible living space with six bedrooms.
Built in 1907, this four-bedroom Edwardian period home has been refurbished by the current owners, retaining many original period features.
Surrounded by landscaped gardens, this five-bedroom home offers living space across three floors.
This lovely country home in Burnham Market is currently run as a popular holiday cottage, with five en suite bedrooms and colourful gardens.
This three-bedroom 17th-century former village bakery is just a few miles from the East Sussex coast.
Set on a landscaped plot, this light and airy four-bedroom home comes with a log burner in the lounge, a fitted kitchen and an open-plan ground-floor layout.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Built on a former chapel site, this impressive four-bedroom home boasts balconies, stunning views and contemporary modern living.
This three-bedroom house is situated in a quiet mews and set over three floors. Features include glazed staircases and high ceilings.
A period townhouse set over four floors, this five-bedroom home was built in the 18th Century and retains many original features.
With five bedrooms, this spacious home offers beautiful gardens and modern interiors - set within the popular market town of Bingley.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This first-floor flat comes with two bedrooms, an impressive open-plan reception room and two lovely roof terraces.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Moored at Taggs Island and reached via a pretty garden, this two-bedroom houseboat has a vaulted reception room and skylit garden studio - currently a beauty salon.
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
A contemporary house spread over three storeys, this three-bedroom detached home has large sliding doors that open out to the River Quaggy.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
This former village bakery, dating back to the 17th century, is now a three-bedroom detached home just a few miles from the East Sussex coast.
On the picturesque Isle of Man, this four-bedroom character home has a ground-floor shop that's currently run as a newsagents and a flat that would make an ideal holiday let.
In a new collection of flats, this first-floor two-bedroom apartment offers ample entertaining space and a prime view of Furze Green from a private balcony.
This three-bedroom stone-built cottage currently trades as the village store with a restaurant in the annexe and family accommodation on the upper floors.
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.