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

PROMOTED VIDEO
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

    Selby Jennings: Oil Operations

    Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

    The Jenrick Group: Night Shift Operations Manager

    £43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

    SThree: Trainee Recruitment Consultant - LONDON

    £20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

    Day In a Page

    Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

    'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

    Yazidi girls killing themselves to escape rape and imprisonment
    Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

    Ed Balls interview

    'If I think about the deficit when I'm playing the piano, it all goes wrong'
    He's behind you, dude!

    US stars in UK panto

    From David Hasselhoff to Jerry Hall
    Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

    Grace Dent's Christmas Quiz

    What are you – a festive curmudgeon or top of the tree?
    Nasa planning to build cloud cities in airships above Venus

    Nasa planning to build cloud cities in airships above Venus

    Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
    Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

    Clocks, rifles, swords, frogmen’s uniforms

    Surrounded by high-rise flats is a little house filled with Lebanon’s history
    Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

    Four months after the bombardment, Gaza’s wounds are yet to heal

    Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
    Gastric surgery: Is it really the answer to the UK's obesity epidemic?

    Is gastric surgery really the answer to the UK's obesity epidemic?

    Critics argue that it’s crazy to operate on healthy people just to stop them eating
    Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

    Homeless Veterans appeal: Christmas charity auction

    Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
    Pantomime rings the changes to welcome autistic theatre-goers

    Autism-friendly theatre

    Pantomime leads the pack in quest to welcome all
    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there