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; request a free guide on NISAs from Hargreaves Lansdown

News
A Brazilian wandering spider
news

World's most lethal spider found under a bunch of bananas

News
people
Sport
Mario Balotelli pictured in the win over QPR
footballInternet reacts to miss shocker for Liverpool striker
Voices
Sol Campbell near his home in Chelsea
voices
PROMOTED VIDEO
News
i100
News
Kimi the fox cub
newsBurberry under fire from animal rights group - and their star, Kimi
Sport
Fans of Palmeiras looks dejected during the match between Palmeiras and Santos
footballPalmeiras fan killed trying to 'ambush' bus full of opposition supporters
Arts and Entertainment
filmsIt's nearly a wrap on Star Wars: Episode 7, producer reveals
Life and Style
fashion
News
i100
News
<p>Jonathan Ross</p>
<p>Jonathan Ross (or Wossy, as he’s affectionately known) has been on television and radio for an extraordinarily long time, working on a seat in the pantheon of British presenters. Hosting Friday Night with Jonathan Ross for nine years, Ross has been in everything from the video game Fable to Phineas and Ferb. So it’s probably not so surprising that Ross studied at Southampton College of Art (since rebranded Southampton Solent), a university known nowadays for its media production courses.</p>
<p>However, after leaving Solent, Ross studied History at the School of Slavonic and East European Studies, now part of the UCL, a move that was somewhat out of keeping with the rest of his career. Ross was made a fellow of the school in 2006 in recognition of his services to broadcasting.</p>
TV

Rumours that the star wants to move on to pastures new

News
i100
Arts and Entertainment
The cast of Downton Abbey indulge in some racing at a Point to Point
tvNew pictures promise a day at the races and a loved-up Lady Rose
News
people

Comedian says he 'never laughed as hard as I have writing with Rik'

Arts and Entertainment
Tim Wonnacott dancing the pasadoble
TVStrictly Come Dancing The Result
Finacial products from our partners
Property search
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

    Operational Risk Manager - Asset Management

    £60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

    Project Coordinator - 12 month contract

    £27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...

    IT Operations Manager - London - £55,000

    £50000 - £55000 per annum + bonus + benefits: Ashdown Group: IT Relationship M...

    Banking Solicitor NQ+

    Highly Attractive Salary : Austen Lloyd: NOTTINGHAM - BRILLIANT FIRM - You wil...

    Day In a Page

    Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

    'They poured water on, then electrified me...'

    If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
    James Wharton: The former Guard now fighting discrimination against gay soldiers

    The former Guard now fighting discrimination against gay soldiers

    Life after the Army has brought new battles for the LGBT activist James Wharton
    Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

    Panic over Ebola threatens to infect the midterms

    Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
    Premier League coaches join the RSC to swap the tricks of their trades

    Darling, you were fabulous! But offside...

    Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
    How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

    How to dress with authority

    Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
    New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

    New book on Ian Curtis sheds fresh light on the life of the late singer

    'Joy Division were making art... Ian was for real' says author Jon Savage
    Sean Harris: A rare interview with British acting's secret weapon

    Sean Harris: A rare interview with British acting's secret weapon

    The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
    Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

    Tim Minchin interview

    For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
    Boris Johnson's boozing won't win the puritan vote

    Boris's boozing won't win the puritan vote

    Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
    Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

    Tim Wheeler: Alzheimer's, memories and my dad

    Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album
    Hugh Bonneville & Peter James: 'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'

    How We Met: Hugh Bonneville & Peter James

    'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'
    Bill Granger recipes: Our chef's heavenly crab dishes don't need hours of preparation

    Bill Granger's heavenly crab recipes

    Scared off by the strain of shelling a crab? Let a fishmonger do the hard work so you can focus on getting the flavours right
    Radamel Falcao: How faith and love drive the Colombian to glory

    Radamel Falcao: How faith and love drive the Colombian to glory

    After a remarkable conversion from reckless defender to prolific striker, Monaco's ace says he wants to make his loan deal at Old Trafford permanent
    Terry Venables: Premier League managers must not be allowed to dictate who plays and who does not play for England

    Terry Venables column

    Premier League managers must not be allowed to dictate who plays and who does not play for England
    The Inside Word: Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past

    Michael Calvin's Inside Word

    Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past