Mark Dampier: Diversify to counter sovereign debt risks

The Analyst

Media attention has been fixated on the Murdoch empire recently with the sovereign debt problems in Europe seeing comparatively little coverage. However, events on the continent are of the utmost importance both economically and politically. It all started, of course, with Greece, a relatively insignificant constituent of European GDP at less than 2 per cent. The markets had dismissed a Greek default as a minor event so long as it was contained, but last week Italy suddenly became the focus of concerns and the crisis threatened to spread. As the third largest bond market in the world Italy is a whole different ballgame and not something that can be dismissed so easily.

I suspect this will rumble on for quite some time. European politicians seem reluctant to make the tough decisions to solve the crisis once and for all. The problem for investors is that predicting the outcome is doubly difficult when politics is involved, so what is the best thing to do? You could make the decision to retreat into cash, but remember you have two decisions to make here: the decision to exit the markets, and eventually the decision to reinvest. Get the timing of these wrong and you end up being no better off, and if the market suddenly rallies while you are on the sidelines you can miss out.

So what is the alternative? I have always been an advocate of having plenty of cash ready to deploy when markets fall, but it is also worth diversifying a portfolio by using different fund managers to help control the level of risk. Fortunately there are a good number of more cautious funds to choose from, and one that undeservedly gets little attention is CF Miton Strategic Portfolio. Martin Gray has managed the fund since December 1996, so he has seen his fair share of market ups and downs.

Unlike certain other funds that use complicated derivatives Mr Gray keeps things simple with an actively managed combination of equities, funds, cash, bonds, and foreign currencies. Presently he has around 40 per cent in a mix of UK assets comprising property, high-yielding shares, cash and gilts. Twenty per cent is allocated to the US through a mixture of equities, gold and cash, and 20 per cent to Japanese yen-denominated assets, both cash and equities. Finally, there is around 20 per cent in Asia, which is primarily in bonds.

Mr Gray has been bearish for some time, although he has successfully caught some of the rallies when he felt markets were oversold. I agree with him this is not a normal economic recovery. With unemployment staying stubbornly high in the UK and the US he has maintained his cautious stance and finds present equity valuations far from compelling. Nonetheless he is poised to take on more risk when he sees the right opportunities. His approach is to be patient and build up his equity exposure if and when markets fall, and with over a third of the fund in cash of various currencies he certainly has the necessary ammunition. Martin Gray does however draw some positives from his view of the world. Firstly, he believes inflation is not a serious threat. With demand easing he expects it to fall back unless we see further quantitative easing. Secondly, he believes interest rates are set to remain low with significant moves perhaps not until 2013. In this environment he believes bonds will do well, and he has already taken advantage of dips in gilt prices to add to his holdings here – in contrast to a number of high-profile bond managers who have shorted gilts and lost money.

This is not going to be a fund that sets the world alight in a bull market. Mr Gray is aiming to preserve capital and reduce volatility as well as provide upside. Sadly many investors ignore this type of fund when the times are good, forgetting that investment is a long-term game. Yet with Martin Gray's contrarian approach long-term returns have been commendable, so it is worth considering as a complement to more aggressive funds, or as a larger holding if you share the manager's views of the world.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.h-l.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

Sport
Australia vs New Zealand live
cricket Follow over-by-over coverage as rivals New Zealand and Australia face off
News
Zayn has become the first member to leave One Direction. 'I have to do what feels right in my heart,' he said
peopleWe wince at anguish of fans, but his 1D departure shows the perils of fame in the social media age
Life and Style
Researchers found that just 10 one-minute swill-and-spit sessions are enough to soften tooth enamel and make teeth vulnerable to erosion
health
News
i100
Arts and Entertainment
The Regent Street Cinema’s projection room in the 1920s
film
News
Leah Devine is only the ninth female to have made the Young Magician of the Year final since the contest began more than 50 years
peopleMeet the 16-year-old who has set her heart on being the first female to win Young Magician of the Year
News
Jonathan Anderson was born in Northern Ireland but now based between London, where he presents a line named JW Anderson
peopleBritish designer Jonathan Anderson is putting his stamp on venerable house Loewe
News
Andy Davidhazy at the beginning (left) and end (right) of his hike
video
News
Taylor Swift is applying to trademark song lyrics from 1989
people
Voices
The popularity of TV shows such as The Liver Birds encouraged Liverpudlians to exaggerate their Scouse accent
voicesWe exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Retirement Coordinator - Financial Services

    Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

    Recruitment Genius: Annuities / Pensions Administrator

    Negotiable: Recruitment Genius: You will be the first point of contact for all...

    Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

    £18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

    Ashdown Group: Learning and Development Programme Manager

    £35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

    Day In a Page

    Election 2015: How many of the Government's coalition agreement promises have been kept?

    Promises, promises

    But how many coalition agreement pledges have been kept?
    The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

    The death of a Gaza fisherman

    He built his own reef, and was fatally shot there by an Israeli gunboat
    Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

    Saudi airstrikes are fuelling the Gulf's fire

    Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
    Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

    The only direction Zayn could go

    We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
    Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

    Spells like teen spirit

    A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
    Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

    If fashion is a cycle, this young man knows just how to ride it

    British designer Jonathan Anderson is putting his stamp on venerable house Loewe
    Number plates scheme could provide a licence to offend in the land of the free

    Licence to offend in the land of the free

    Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
    From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

    From farm to fork in Cornwall

    One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
    Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

    Robert Parker interview

    The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
    Don't believe the stereotype - or should you?

    Don't believe the stereotype - or should you?

    We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor
    How to make your own Easter egg: Willie Harcourt-Cooze shares his chocolate recipes

    How to make your own Easter egg

    Willie Harcourt-Cooze talks about his love affair with 'cacao' - and creates an Easter egg especially for The Independent on Sunday
    Bill Granger recipes: Our chef declares barbecue season open with his twist on a tradtional Easter Sunday lamb lunch

    Bill Granger's twist on Easter Sunday lunch

    Next weekend, our chef plans to return to his Aussie roots by firing up the barbecue
    Joe Marler: 'It's the way I think the game should be played'

    Joe Marler: 'It's the way I think the game should be played'

    The England prop relives the highs and lows of last Saturday's remarkable afternoon of Six Nations rugby
    Cricket World Cup 2015: Has the success of the tournament spelt the end for Test matches?

    Cricket World Cup 2015

    Has the success of the tournament spelt the end for Test matches?
    The Last Word: Justin Gatlin knows the price of everything, the value of nothing

    Michael Calvin's Last Word

    Justin Gatlin knows the price of everything, the value of nothing