Mark Dampier: Diversify to counter sovereign debt risks
Saturday 23 July 2011
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
- 1 The West has it totally wrong on Lee Kuan Yew
- 2 Watch: Man takes selfie every mile of 2,600 mile hike, creates amazing timelapse video
- 3 The day I starred in Only Fools and Horses
- 4 #FreeTheNipple: Women in Iceland bare breasts in solidarity with trolled student
- 5 Scientists have discovered a simple way to cook rice that dramatically cuts the calories
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Revealed: Putin's army of pro-Kremlin bloggers
Germanwings plane crash: Co-pilot Andreas Lubitz wanted to 'do something people would remember him for'
The West has it totally wrong on Lee Kuan Yew
iJobs Money & Business
Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...
Negotiable: Recruitment Genius: You will be the first point of contact for all...
£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...
£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...
Day In a Page
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
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.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
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.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
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
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station