Mark Dampier: Fund manager cites history as he bets against a Japanese recovery

The Analyst

Last week's column talked about stock markets climbing a wall of worry. It is fair to say the past five years have been tough for those trying to make bigger calls on asset allocation and the wider economy. Stock markets and economies have not performed as many expected.

Generally, I prefer to back fund managers who focus on the prospects for individual companies rather than the wider economy. That said, I am not blind to the huge manipulation of developed world economies by central banks and politicians. It may be that over the past five years there has been a brief stay of execution before a final reckoning. Therefore, there is always place in my own portfolio for a different kind of fund that focuses on some of the bigger issues. I like to think of it as an insurance policy.

This leads me nicely to the Artemis Strategic Assets Fund, which is managed by William Littlewood. Effectively this is a hedge fund but with no performance fee. Note to others in the industry – please remember, just because you short stocks it doesn't entitle you to a 20 per cent performance fee.

Mr Littlewood's economic views are not complicated. He believes either inflation or default will be the natural consequence of the policies being pursued by indebted Western governments. His total asset exposure at the moment is 66 per cent equities, 9 per cent in commodities and 25 per cent cash. He can also take "short" positions with the aim of benefiting from falling asset prices. His short equities exposure is 14 per cent, which results in a net exposure to equities of 52 per cent overall.

His main short exposure is to bonds where, using derivatives, he has shorted almost 100 per cent of the funds value. Of this, 64.5 per cent is a short position on Japanese government bonds. He believes Japan has the worst of everything: lots of debt; an ageing population; and quantitative easing on a huge scale. He cites history to be on his side, noting that in the 1930s the Japanese were in a depression. They printed money and spent it on various projects all of which worked well to begin with, but eventually it led to sky-high inflation. If the same happens again, the price of bonds would be expected to fall and the fund could benefit. To a lesser extent he is short French, UK and US government bonds.

While I have little doubt bonds will have a poor time at some stage, I have argued with Mr Littlewood for a while that I see no need to short them until we see some event to change their fortunes. These short positions have cost the fund dearly since launch, losing in the region of 20 per cent.

The cash position is held partly in foreign currencies, including the Singapore dollar, Taiwanese dollar and Norwegian krone. Unsurprisingly, he has a short position on the Japanese yen and also the Australian dollar. The Australian economy is closely tied to the fate of China and he believes that the slowing Chinese economy will have a negative impact on the Australian economy and currency.

When it comes to equities Mr Littlewood makes the point that if bond markets get hit, so will shares. He is concerned profit margins are high relative to history and will have to fall back. He believes companies could have a tough time, particularly if Labour penalises corporations as we have already seen with banks and energy companies. He is inclined to take profits into strength and buy back on any setbacks. His view is that investors are fully invested in the market and notes that in the US particularly valuations are looking stretched. At present, I am not so sure, at least in the UK where many investors seem reluctant having experienced two significant setbacks in the past 10 years.

I hold this fund in my own SIPP and have topped up a couple of times. While I haven't always agreed with Mr Littlewood's timing of investments, I have plenty of sympathy for him in his overall views. Like him, I believe gold will come back eventually and the likelihood of government default or inflation looks to me to be very high. What I don't know is when that day will be. Mr Littlewood is one of my favourite fund managers and having known him for about 20 years I am happy to entrust part of my portfolio to him. If things do go horribly wrong, I expect this fund to prosper. It is doing something different from the rest of my funds and provides a vital element of diversification to my portfolio.

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 hl.co.uk/independent

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

News
Actor Burt Reynolds last year
peopleBurt Reynolds, once among the most bankable actors in Hollywood, is set to auction his memorabilia
News
Gordon and Tana Ramsay arrive at the High Court, London
newsTV chef gives evidence against his father-in-law in court case
News
people

Watch the spoof Thanksgiving segment filmed for Live!
News
The data shows that the number of “unlawfully” large infant classes has doubled in the last 12 months alone
i100Mike Stuchbery, a teacher in Great Yarmouth, said he received abuse
PROMOTED VIDEO
Arts and Entertainment
The starship in Star Wars: The Force Awakens
filmsThe first glimpse of JJ Abrams' new film has been released online
Arts and Entertainment
The cover of The Guest Cat – expect to see it everywhere
books
News
i100 Charity collates series of videos that show acts of kindness to animals
Arts and Entertainment
One of the installations in the Reiner Ruthenbeck exhibition at the Serpentine Gallery
artCritics defend Reiner Ruthenbeck's 'Overturned Furniture'
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

    Austen Lloyd: Company Secretary

    Excellent Package: Austen Lloyd: EAST ANGLIA - SENIOR SOLICITOR LEVEL ROLE** -...

    Citifocus Ltd: German Speaking Client Specialist

    £Attractive Package: Citifocus Ltd: Prestigious asset management house seeks a...

    Citifocus Ltd: Performance & Risk Oversight

    £Negotiable: Citifocus Ltd: This is a varied role focusing on the firm's mutua...

    h2 Recruit Ltd: Sales Director - SaaS (SME/Channel) - £140,000 OTE

    £90000 - £140000 per annum + benefits: h2 Recruit Ltd: Are you a high achievin...

    Day In a Page

    Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

    Christmas Appeal

    Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
    Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

    Is it always right to try to prolong life?

    Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

    What does it take for women to get to the top?

    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
    Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

    Knitting pretty: British Christmas Jumpers

    Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
    French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

    French chefs campaign against bullying

    A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
    Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

    Just what you need on a New Year hangover...

    Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
    Cuba set to stage its first US musical in 50 years

    Cuba to stage first US musical in 50 years

    Claire Allfree finds out if the new production of Rent will hit the right note in Havana
    Christmas 2014: 10 best educational toys

    Learn and play: 10 best educational toys

    Of course you want them to have fun, but even better if they can learn at the same time
    Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

    Paul Scholes column

    I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
    Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

    Lewis Moody: Lancaster has made all the right calls – now England must deliver

    So what must the red-rose do differently? They have to take the points on offer 
    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
    Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

    Sol Campbell cries foul at Labour's mansion tax

    The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
    Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

    Sarkozy returns

    The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
    Is the criticism of Ed Miliband a coded form of anti-Semitism?

    Is the criticism of Miliband anti-Semitic?

    Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
    Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

    Ouija boards are the must-have festive gift

    Simon Usborne explores the appeal - and mysteries - of a century-old parlour game